OK, so I've went round and round trying to figure out how my rackspace server was compromised and have come to the conclusion it was an inside job, but nobody's fessing up. I can see what sort of package was used to compromise my box and I may come back to trying to poison that package, but there isn't enough time in my life to continue to school folks who are hell bent on screwing with other people's property.
Instead, I'll give folks a quick primer one how to have a little better security if you choose to use rackspace with ubuntu 10.04.
#1 make sure your rackspace console password is secure... some basic rules: 10 chars, no dictionary words, upper and lower case letter, 2 number, at least one special char.
#2 Once you get your root password emailed to you, log in via the secure console, and disable both network interfaces. I'm not sure what the 10.* interface is for, I'll figure that out later, but I'm assuming it's some sort of rackspace backchannel.
#3 Change the root password to something secure (NOT your console password).
#4 Disable root login via ssh
#5 reenable networking.
At a minimum, someone must now guess a user account, a user password, AND the root password. to get root access to your machine (assuming you don't do something really stupid like installing random linux rootkit because your "friend" said it was kewl warez).
This should get you to a reasonably safe place to start with.
Note, if you want to ssh directly to your box, create a new user account (with a secure password) and you can do direct ssh and still be fairly secure. Adding user to sudoers has the effect if giving root with 1 password (although it is theoretically still more secure if you have a difficult to guess userid).