Hi Tomasz,

here is the log of c2s -D:

Thu Sep 22 12:49:04 2011 c2s.c:562 accept action on fd 11
Thu Sep 22 12:49:04 2011 [notice] [11] [<ip address hidden>, port=2256] connect
sx (sx.c:61) allocated new sx for 11
sx (server.c:237) doing server init for sx 11
sx (server.c:252) waiting for stream header
sx (server.c:255) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
Thu Sep 22 12:49:04 2011 c2s.c:525 read action on fd 11
sx (io.c:191) 11 ready for reading
sx (io.c:197) tag 11 event 2 data 0x69cc10
Thu Sep 22 12:49:04 2011 c2s.c:45 reading from 11
Thu Sep 22 12:49:04 2011 c2s.c:104 read 141 bytes
sx (io.c:216) passed 141 read bytes
sx (chain.c:93) calling io read chain
sx (io.c:240) decoded read data (141 bytes): <?xml version='1.0' ?><stream:stream to='<servername hidden>' xmlns='jabber:client' xmlns:stream='http://etherx.jabber.org/streams' version='1.0'>
sx (server.c:119) stream request: to <servername hidden> from (null) version 1.0
sx (server.c:134) 11 state change from 0 to 1
sx (server.c:152) stream id is r473pmcx2tyn7xbxt9u6i9ckpbfq50uw410uocrq
Thu Sep 22 12:49:04 2011 ack.c:30 hacking ack namespace decl onto stream header
sx (server.c:182) prepared stream response: <?xml version='1.0'?><stream:stream xmlns:stream='http://etherx.jabber.org/streams' xmlns='jabber:client' from='<servername hidden>' version='1.0' id='r473pmcx2tyn7xbxt9u6i9ckpbfq50uw410uocrq' xmlns:ack='http://www.xmpp.org/extensions/xep-0198.html#ns'>
sx (io.c:256) tag 11 event 1 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:40 want write
Thu Sep 22 12:49:04 2011 c2s.c:539 write action on fd 11
sx (io.c:328) 11 ready for writing
sx (io.c:286) encoding 248 bytes for writing: <?xml version='1.0'?><stream:stream xmlns:stream='http://etherx.jabber.org/streams' xmlns='jabber:client' from='<servername hidden>' version='1.0' id='r473pmcx2tyn7xbxt9u6i9ckpbfq50uw410uocrq' xmlns:ack='http://www.xmpp.org/extensions/xep-0198.html#ns'>
sx (chain.c:79) calling io write chain
sx (io.c:349) handing app 248 bytes to write
sx (io.c:350) tag 11 event 3 data 0x69cc40
Thu Sep 22 12:49:04 2011 c2s.c:142 writing to 11
Thu Sep 22 12:49:04 2011 c2s.c:146 248 bytes written
sx (server.c:29) stream established
sx (server.c:39) 11 state change from 1 to 3
sx (server.c:40) tag 11 event 4 data 0x0
sx (server.c:45) building features nad
sx (address.c:34) adding address feature
sx (sasl_gsasl.c:355) offering sasl mechanisms
sx (sasl_gsasl.c:779) in _sx_sasl_gsasl_callback, property: 18
sx (sasl_gsasl.c:779) in _sx_sasl_gsasl_callback, property: 18
sx (sasl_gsasl.c:375) offering mechanism: PLAIN
sx (sasl_gsasl.c:375) offering mechanism: DIGEST-MD5
Thu Sep 22 12:49:04 2011 bind.c:38 not auth'd, offering auth and register
sx (io.c:383) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
Thu Sep 22 12:49:04 2011 c2s.c:539 write action on fd 11
sx (io.c:328) 11 ready for writing
sx (io.c:286) encoding 391 bytes for writing: <stream:features xmlns:stream='http://etherx.jabber.org/streams'><address xmlns='http://affinix.com/jabber/address'><ip address hidden></address><mechanisms xmlns='urn:ietf:params:xml:ns:xmpp-sasl'><mechanism>PLAIN</mechanism><mechanism>DIGEST-MD5</mechanism></mechanisms><auth xmlns='http://jabber.org/features/iq-auth'/><register xmlns='http://jabber.org/features/iq-register'/></stream:features>
sx (chain.c:79) calling io write chain
sx (io.c:349) handing app 391 bytes to write
sx (io.c:350) tag 11 event 3 data 0x69cc40
Thu Sep 22 12:49:04 2011 c2s.c:142 writing to 11
Thu Sep 22 12:49:04 2011 c2s.c:146 391 bytes written
sx (io.c:383) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
Thu Sep 22 12:49:04 2011 c2s.c:525 read action on fd 11
sx (io.c:191) 11 ready for reading
sx (io.c:197) tag 11 event 2 data 0x69cc40
Thu Sep 22 12:49:04 2011 c2s.c:45 reading from 11
Thu Sep 22 12:49:04 2011 c2s.c:104 read 162 bytes
sx (io.c:216) passed 162 read bytes
sx (chain.c:93) calling io read chain
sx (io.c:240) decoded read data (162 bytes): <auth xmlns='urn:ietf:params:xml:ns:xmpp-sasl' mechanism='DIGEST-MD5' xmlns:ga='http://www.google.com/talk/protocol/auth' ga:client-uses-full-bind-result='true'/>
sx (io.c:92) completed nad: <auth xmlns:ga='http://www.google.com/talk/protocol/auth' xmlns='urn:ietf:params:xml:ns:xmpp-sasl' ga:client-uses-full-bind-result='true' mechanism='DIGEST-MD5'/>
sx (chain.c:119) calling nad read chain
sx (sasl_gsasl.c:412) auth request from client (mechanism=DIGEST-MD5)
Thu Sep 22 12:49:04 2011 main.c:383 sx sasl callback: get realm: realm is '<servername hidden>'
sx (sasl_gsasl.c:467) sasl context initialised for 11
sx (sasl_gsasl.c:779) in _sx_sasl_gsasl_callback, property: 13
sx (sasl_gsasl.c:547) sasl handshake in progress (challenge: realm="<servername hidden>", nonce="z7a4e6G+0nScZ1afN50kBg==", qop="auth", charset=utf-8, algorithm=md5-sess)
sx (chain.c:106) calling nad write chain
sx (io.c:406) queueing for write: <challenge xmlns='urn:ietf:params:xml:ns:xmpp-sasl'>cmVhbG09InBkcmRldi5iYmF3LmRlIiwgbm9uY2U9Ino3YTRlNkcrMG5TY1oxYWZONTBrQmc9PSIsIHFvcD0iYXV0aCIsIGNoYXJzZXQ9dXRmLTgsIGFsZ29yaXRobT1tZDUtc2Vzcw==</challenge>
sx (io.c:256) tag 11 event 1 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:40 want write
Thu Sep 22 12:49:04 2011 c2s.c:539 write action on fd 11
sx (io.c:328) 11 ready for writing
sx (io.c:286) encoding 204 bytes for writing: <challenge xmlns='urn:ietf:params:xml:ns:xmpp-sasl'>cmVhbG09InBkcmRldi5iYmF3LmRlIiwgbm9uY2U9Ino3YTRlNkcrMG5TY1oxYWZONTBrQmc9PSIsIHFvcD0iYXV0aCIsIGNoYXJzZXQ9dXRmLTgsIGFsZ29yaXRobT1tZDUtc2Vzcw==</challenge>
sx (chain.c:79) calling io write chain
sx (io.c:349) handing app 204 bytes to write
sx (io.c:350) tag 11 event 3 data 0x69c690
Thu Sep 22 12:49:04 2011 c2s.c:142 writing to 11
Thu Sep 22 12:49:04 2011 c2s.c:146 204 bytes written
sx (io.c:383) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
Thu Sep 22 12:49:04 2011 c2s.c:525 read action on fd 11
sx (io.c:191) 11 ready for reading
sx (io.c:197) tag 11 event 2 data 0x69c690
Thu Sep 22 12:49:04 2011 c2s.c:45 reading from 11
Thu Sep 22 12:49:04 2011 c2s.c:104 read 394 bytes
sx (io.c:216) passed 394 read bytes
sx (chain.c:93) calling io read chain
sx (io.c:240) decoded read data (394 bytes): <response xmlns='urn:ietf:params:xml:ns:xmpp-sasl'>dXNlcm5hbWU9ImN6bWllbCIscmVhbG09InBkcmRldi5iYmF3LmRlIixub25jZT0iejdhNGU2RyswblNjWjFhZk41MGtCZz09Iixjbm9uY2U9IlpoTkpiM1JPWFFWVmZDaElKeFlOYjJ4ZkV5a0tDVkpvUlRrMEpqdEFFeWs9IixuYz0wMDAwMDAwMSxxb3A9YXV0aCxtYXhidWY9NDA5NixkaWdlc3QtdXJpPSJ4bXBwL3BkcmRldi5iYmF3LmRlIixyZXNwb25zZT05NWRhZGRkMzU1Y2Y0ZjYxZGU1MWY2Y2E2YzA5MWFlZCxjaGFyc2V0PXV0Zi04</response>
sx (io.c:92) completed nad: <response xmlns='urn:ietf:params:xml:ns:xmpp-sasl'>dXNlcm5hbWU9ImN6bWllbCIscmVhbG09InBkcmRldi5iYmF3LmRlIixub25jZT0iejdhNGU2RyswblNjWjFhZk41MGtCZz09Iixjbm9uY2U9IlpoTkpiM1JPWFFWVmZDaElKeFlOYjJ4ZkV5a0tDVkpvUlRrMEpqdEFFeWs9IixuYz0wMDAwMDAwMSxxb3A9YXV0aCxtYXhidWY9NDA5NixkaWdlc3QtdXJpPSJ4bXBwL3BkcmRldi5iYmF3LmRlIixyZXNwb25zZT05NWRhZGRkMzU1Y2Y0ZjYxZGU1MWY2Y2E2YzA5MWFlZCxjaGFyc2V0PXV0Zi04</response>
sx (chain.c:119) calling nad read chain
sx (sasl_gsasl.c:523) response from client (decoded: username="czmiel",realm="<servername hidden>",nonce="z7a4e6G+0nScZ1afN50kBg==",cnonce="ZhNJb3ROXQVVfChIJxYNb2xfEykKCVJoRTk0JjtAEyk=",nc=00000001,qop=auth,maxbuf=4096,digest-uri="xmpp/<servername hidden>",response=95daddd355cf4f61de51f6ca6c091aed,charset=utf-8)
sx (sasl_gsasl.c:779) in _sx_sasl_gsasl_callback, property: 12
sx (sasl_gsasl.c:779) in _sx_sasl_gsasl_callback, property: 3
Thu Sep 22 12:49:04 2011 main.c:390 sx sasl callback: get pass (authnid=czmiel, realm=<servername hidden>)
Thu Sep 22 12:49:04 2011 authreg_sqlite.c:108 sqlite (authreg): get password
sx (sasl_gsasl.c:531) sasl handshake completed
sx (chain.c:106) calling nad write chain
sx (io.c:406) queueing for write: <success xmlns='urn:ietf:params:xml:ns:xmpp-sasl'/>
sx (io.c:256) tag 11 event 1 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:40 want write
Thu Sep 22 12:49:04 2011 c2s.c:539 write action on fd 11
sx (io.c:328) 11 ready for writing
sx (io.c:286) encoding 51 bytes for writing: <success xmlns='urn:ietf:params:xml:ns:xmpp-sasl'/>
sx (chain.c:79) calling io write chain
sx (io.c:349) handing app 51 bytes to write
sx (io.c:350) tag 11 event 3 data 0x69f6a0
Thu Sep 22 12:49:04 2011 c2s.c:142 writing to 11
Thu Sep 22 12:49:04 2011 c2s.c:146 51 bytes written
sx (chain.c:28) adding io plugin
sx (sasl_gsasl.c:396) auth completed, resetting
sx (sx.c:154) resetting stream state
sx (sx.c:78) freeing sx for 11
sx (sx.c:61) allocated new sx for 11
sx (sx.c:209) finished resetting stream state
sx (server.c:237) doing server init for sx 11
sx (server.c:252) waiting for stream header
sx (server.c:255) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
sx (io.c:383) tag 11 event 0 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:35 want read
Thu Sep 22 12:49:04 2011 c2s.c:525 read action on fd 11
sx (io.c:191) 11 ready for reading
sx (io.c:197) tag 11 event 2 data 0x69f6a0
Thu Sep 22 12:49:04 2011 c2s.c:45 reading from 11
Thu Sep 22 12:49:04 2011 c2s.c:104 read 16 bytes
sx (io.c:216) passed 16 read bytes
sx (chain.c:93) calling io read chain
sx (sasl_gsasl.c:246) doing sasl decode
sx (sasl_gsasl.c:262) 16 bytes decoded from sasl channel
sx (io.c:240) decoded read data (16 bytes): </stream:stream>
sx (io.c:45) XML parse error: not well-formed (invalid token); line: 1, column: 1
sx (io.c:47) tag 11 event 8 data 0xf5439540
Thu Sep 22 12:49:04 2011 [notice] [11] [<ip address hidden>, port=2256] error: XML parse error (not well-formed (invalid token))
sx (error.c:79) prepared error: <stream:stream xmlns:stream='http://etherx.jabber.org/streams' version='1.0'><stream:error xmlns:stream='http://etherx.jabber.org/streams'><xml-not-well-formed xmlns='urn:ietf:params:xml:ns:xmpp-streams'/><text xmlns='urn:ietf:params:xml:ns:xmpp-streams'>not well-formed (invalid token)</text></stream:error></stream:stream>
sx (io.c:477) 11 state change from 0 to 5
sx (io.c:256) tag 11 event 1 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:40 want write
Thu Sep 22 12:49:04 2011 c2s.c:539 write action on fd 11
sx (io.c:328) 11 ready for writing
sx (io.c:286) encoding 324 bytes for writing: <stream:stream xmlns:stream='http://etherx.jabber.org/streams' version='1.0'><stream:error xmlns:stream='http://etherx.jabber.org/streams'><xml-not-well-formed xmlns='urn:ietf:params:xml:ns:xmpp-streams'/><text xmlns='urn:ietf:params:xml:ns:xmpp-streams'>not well-formed (invalid token)</text></stream:error></stream:stream>
sx (chain.c:79) calling io write chain
sx (sasl_gsasl.c:218) doing sasl encode
sx (sasl_gsasl.c:234) 324 bytes encoded for sasl channel
sx (io.c:349) handing app 324 bytes to write
sx (io.c:350) tag 11 event 3 data 0x69d7d0
Thu Sep 22 12:49:04 2011 c2s.c:142 writing to 11
Thu Sep 22 12:49:04 2011 c2s.c:146 324 bytes written
sx (io.c:375) 11 state change from 5 to 6
sx (io.c:376) tag 11 event 7 data 0x0
Thu Sep 22 12:49:04 2011 c2s.c:544 close action on fd 11
Thu Sep 22 12:49:04 2011 [notice] [11] [<ip address hidden>, port=2256] disconnect jid=unbound, packets: 0
sx (sx.c:78) freeing sx for 11
sx (sx.c:111) freeing 4 env plugins
sx (sasl_gsasl.c:767) cleaning up conn state


I hope this helps you.
The SASL compiled against is: Cyrus-SASL 2.1.22

Thanks
Lars