iptables is a Linux packet filtering mechanism. So the problem was server-side, and unrelated to eqemu (other than affecting eqemu operation). Packets from the client to the server were discarded, and both client and server were upset that they didn't hear back from the other.
If you believe this is the same problem, look for firewalls/packet filters between the client and the server.
Edit: just noticed the part about external connections not working (it is late for me atm). This screams out packet filtering on a router. Make sure the proper ports are opened.
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