I agree that the Answer would be C.
But sorry Negrita, I somewhat disagree with your explanation because:
1) though it is still possible it's not very likely that somebody still has valid accounts/passwords in the dummy passwd file used by most ftp-servers
2) why an attacker would wait more than 36 hours to login after retrieving a valid account ? (sure it could have happened that way, but I don't think so.)
Look at these entries:
Apr 25 02:08:07 [5875]: IDS277/DNS-version-query: 63.226.81.13:4499 -> 172.16.1.107:80
Apr 26 06:43:05 [6283]: IDS181/nops-x86: 63.226.81.13:1351 -> 172.16.1.107:53
Apr 26 06:44:25 victim7 PAM_pwdb[12509]: (login) session opened for user simple by (uid=0)
Apr 26 06:44:36 victim7 PAM_pwdb[12521]: (su) session opened for user simon by simple(uid=506)
It looks like an attacker has first discovered a certain version of DNS-server-software (most likely some vulnerable version of bind), then exploited a buffer overflow (NOPs are often part of the payload to exploit buffer overflows) and then logged in first with an unprivileged account and then su'ed to a privileged account...
BTW, I found that log somewhat familiar - if you are interested in the whole story have a look
here