I spent the last few days fighting this problem. I found that I had two real problems - and actually found solutions for them!
1) I was using the Foxserv setup on WinXP Home, which was running Apache 2.0.39 & PHP 4.2.2. There IS a problem in PHP 4.2.2 which I believe will prevent the login process from working correctly. The problem is that during the login process, WP attempts to generate two cookies to send to your browser. With PHP 4.2.2, only one of the two cookies (the last one generated) actually goes out in the HTTP headers on the reply to the login attempt. I do not believe there is a workaround for this problem other than to upgrade to a newer PHP version. After fighting unsuccessfully to upgrade the Foxserv PHP, I installed the latest XAMPP package and switched to PHP 4.3.8 (XAMPP was great - installed real easy). If you want to examine some PHP discussion on this cookie issue, you can check out http://bugs.php.net/bug.php?id=16626.
2) Once I got around that problem, and the server was actually sending both cookies out, I found that my browser was not returning the cookies to WP as it should. After more digging on this problem, I found that Internet Explorer, in response to security issues, will not accept cookies from servers with 'non-compliant' host names. I was using my machine name in the http address to access WP, and my machine name had a '_' (underscore) in it. That made the machine name non-compliant, and the IE browser would not accept the cookies that WP sent at login. I changed my machine name to remove the underscore, and VOILA - I was able to login to WP.
Your mileage may vary - I just thought I'd share the info since it might help a few others to overcome this login issue.