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Well it was tried on the same server, but different database and fresh install, problem happened. We do all our edit on a test site, and then move them to the main site. And this problem happened on the test site.
It could be as simple as a bad upload of the original site, but I would say this should be something to look into. Since it basically gave any user the ability to become someone and even become administrators. The only good thing was that it changed users so often a regular user never had a chance to mess with the admin panel, though it made for some interesting PMs since poeple thought they were themselves and would PM others but it would end up coming from another user. The hack fixed it, but this could be a very large security hole if its not as simple as a bad uploaded file.