Here's the fix. A lot of people are unable to get Twitter Tool to login to twitter. The twitter server is denying access because the user-agent is set to Twitter Tools. I have no idea if twitter server is denying certain people based on their account & user-agent, or whatever. It is indeed a twitter issue because the twitter server is responding with a 401 Unauthorized error. As far as I know I'm in good standing with twitter. No problems with twitter at all.
How to fix the "Twitter Tools" login failed issue:
1. Go to admin "Plugins" and click on "Editor"
2. Edit the file: twitter-tools/twitter-tools.php
3. Search for: function aktt_login_test
4. Change the variable, $snoop->agent, to this or whatever agent you want -->
$snoop->agent = 'Mozilla/5.0 (Windows; U; Windows NT 5.1; en-US; rv:220.127.116.11) Gecko/20100625 Firefox/3.6.6';
There's no line break in the above code.
I hope that helps.