dblink not working in FC5

Recently, I upgraded one of my server from FC4 to FC5. This also upgraded
postgresql to 8.1.3. The upgrade was flawless. Unfortunately, I cannot get
dblink to work in this version of postgresql. I created two fresh databases
and tried... still no luck. I keep getting the following error:

bulbulbo=# select dblink_connect('hostaddr=127.0.0.1 dbname=bulbulfo
user=bulbul password=password');
ERROR: could not establish connection
DETAIL: could not connect to server: Permission denied
Is the server running on host "127.0.0.1" and accepting
TCP/IP connections on port 5432?

bulbulbo=# select dblink_connect('dbname=bulbulfo user=bulbul');
ERROR: could not establish connection
DETAIL: could not connect to server: Permission denied
Is the server running locally and accepting
connections on Unix domain socket "/tmp/.s.PGSQL.5432"?

My pg_hba.conf is as follows:
----------------------
local all all trust
# IPv4 local connections:
host all all 127.0.0.1/32 password
host all all 192.168.0.0/24 password
host all all 10.1.2.0/24 password

# IPv6 local connections:
host all all ::1/128 sameuser
--------------------

The error seems to be client authentication error. I researched and found
that the message "could not establish connection" seems to coming from
dblink.c (inside contrib/dblink), and it gets triggred when it is unable to
create connection to the database. I though that this may be happening
because libpq is not working properly. So, I compiled a simple program,
written in C, that uses libpq and that program works fine.

I have kind of hit the roadblock. Any help would be appreciated.

Thanks

Manish

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