Here is a patch that fixes this bug. I took it directly from /etc/init.d/samba.
Thanks, Andrew.
--- /etc/init.d/xinetd.dpkg-dist 2005-03-12 10:00:40.000000000 -0500 +++ /etc/init.d/xinetd 2007-01-13 18:22:45.000000000 -0500 @@ -2,6 +2,9 @@ # # /etc/init.d/xinetd -- script to start and stop xinetd. +# clear conflicting settings from the environment +unset TMPDIR + if test -f /etc/default/xinetd; then . /etc/default/xinetd fi