Just to clarify, you should remove that line of code (in the <loginserver> section of the config file) either way. That's what the world server uses to try to connect to the public login server. You will also need to make sure that the LoginType is set to Minilogin in your database:
LoginType (wiki):
Code:
UPDATE variables SET value='Minilogin' WHERE varname='LoginType';
That should get you up and running, and if not, at least give you some different error messages.