There's something weird at your end, possibly due to your PHP version (5.0.5).
The following code in sapphire/security/Permission.php (static function groupList) fails:
if($groups) foreach($groups as $group) $groupList = $group->ID;
For somereason the foreach doesn't run.
I've put a hack in your code below this line:
$groupList = 1;
I can now login, but it now assumes every member of your site is an admin (you are the only user, so this is kinda okay for now).
I'll see if someone else can shed light on this....