There was a release of denyhosts that finally fixes this bug! (Maybe the RHEL EPEL maintenance crew read my blog post, haha). So as long as you patch through 2.6-6.el5 (or equivalent if you are running a newer version of CentOS/RHEL/etc) then you will not have this issue. Thanks EPEL team!
Original article for reference
So, I hesitate to call this a vulnerability, but it definitely is a critical issue.