This behavior is present in both 1.4.2 and 1.5.0
Customer has written an NT wrapper that allows a sessions applications to continue to run when users log out. This was a business requirement due to batch jobs that needed to be run when users are logged out and the application be there when users log back in.

When the Jdialog box is opened and user logs out and then back in everything is still running, but as soon as the JDialog is closed the main Frame loses Focus and functionality.
After gaining focus through the taskbar and using the keyboard to open a new JDialog box and then closing it full functionality is restored to the test case.

See comments for direction to reproduce.

 There are some major differences in how we launch Java in our NT service and how
 the NT wrapper launches the JVM. Using either one, the problem still exists.
  
 Differences:
 NT wrapper starts the JVM through an API and does not use the -Xrs to
 keep the JVM alive, but handles the windows events.
 Customers NT service calls CreateProcess() calling Java.exe and uses the -Xrs
 command to keep the JVM alive.
  
 The problem exists in both. Was just able to reproduce and distribute
 the problem easier with the NT service wrapper.