Chris, Pam really restricts login with these settings, that means I cannot open 2 console sessions and I cannot open one samba session + one console session. But KDM does seem to respond to the code returned by pam. I am not a PAM expert but I believe that pam returns a session failure code and then KDM should respond showing something like "access denied". A while ago I also tried XDM and GDM and only one of those two reacted as expected. Shall I send you logging from a console login (for comparison)? Do you need some other information?
Kees.