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Failing to practice what it preaches, Microsoft acknowledges the Code Red worm infected two servers used for its Hotmail Web-based e-mail service.

"A few MSN Hotmail servers were affected by the Code Red worm virus. The servers were promptly removed from the MSN Hotmail environment, shut down and patched," says a Microsoft representative in the United Kingdom. The infection was detected late Wednesday afternoon in the United States, she says.

A version of the Code Red worm slithered into Microsoft's servers through a known security flaw for which Microsoft has issued a patch. The company has urged its customers to upgrade their server software to correct the vulnerability, which has recently been exploited by the fast-traveling worm.

The two infected systems were a test system and a production system, the spokesperson says. Microsoft maintains no user data was compromised and all customers should be able to access the Hotmail service securely. Hotmail has more than 100 million customers worldwide.

Microsoft has taken extra steps to ensure the security of its network and servers to minimize the impact of the worm, according to the spokesperson. The company seems to have been caught by the Code Red II (also known as Code Red 3.0), a variant of the original Code Red worm, which surfaced last weekend.

"Our understanding of the Code Red variant is that it is very effective and has a greater potential to compromise systems," the spokesperson says.

Code Red Persists

Both Code Red and Code Red II exploit the same known hole in Microsoft Internet Information Server. Microsoft published the patch in mid-June. Microsoft was part of an unprecedented public relations campaign in late July that urged all users of the software, a standard part of Windows 2000 and Windows NT, to install that patch in the wake of the Code Red reawakening on August 1.

This isn't the first time that Microsoft has neglected to install its own security patches. A Dutch hacker named Dimitri managed to hack into a Microsoft Web server twice last year. Dimitri broke in the second time after Microsoft said its security personnel had plugged the security hole the hacker had exploited.

The Code Red worm's initial target was the White House, as part of a distributed denial of service attack. It has been active at the same time as the Sircam worm, which travels in an e-mail attachment.

To combat the Code Red worm family, AT&T says it is blocking incoming access to Web servers operated by residential customers of its cable Internet service.

The action essentially closes the sites, which residential customers are not supposed to have anyway, according to an AT&T representative. Commercial customers and sites are not affected.

Besides Microsoft, Code Red has also claimed other victims worldwide. Employees of consulting company Cap Gemini Ernst & Young in some countries on Tuesday had no access to their intranet for many hours because of the worm, a spokesperson confirms. Also, about 30,000 DSL customers in Taiwan were attacked by the worm, slowing their Internet connection, according to security firm Trend Micro.

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