At the moment, logins to enwiki from nightshade.toolserver.org are throwing up a CAPTCHA. This is easy to check by loading http://en.wikipedia.org/wiki/Special:UserLogin in w3m or another browser from that host. Logins from willow.toolserver.org do not require a CAPTCHA at the moment.
The CAPTCHA requirement makes it impossible for bots to log in via the API. The fundamental problem is that bots are run automatically, of course. But the API also does not report the CAPTCHA requirement at all, so bot developers are given a "WrongPass" error that they have to investigate to find that a CAPTCHA is the problem.
This CAPTCHA situation has happened before, most likely due to some erroneous bot on toolserver triggering it. But individual bot operators cannot fix it, and so to them it has the same effect as a toolserver outage. Moreover, whatever bot operator caused it probably has no way to know it was them.
It seems like this may take collaboration between toolserver and wikimedia to fix, but probably the fix will involve at least some change on the wikimedia side. So I have filed a bug at https://bugzilla.wikimedia.org/show_bug.cgi?id=23982 to coordinate discussion there.
- Carl