The attached patch is a straight port of Chris' Dec 8 2003 (or thereabouts)
patch to fix the same problem.  It seems to work as expected.

-serge

Index: linux-2.6.10-ckdev/security/dummy.c
===================================================================
--- linux-2.6.10-ckdev.orig/security/dummy.c	2004-12-25 10:14:52.000000000 +1100
+++ linux-2.6.10-ckdev/security/dummy.c	2004-12-29 11:42:30.075664878 +1100
@@ -74,12 +74,10 @@ static int dummy_acct (struct file *file
 
 static int dummy_capable (struct task_struct *tsk, int cap)
 {
-	if (cap_is_fs_cap (cap) ? tsk->fsuid == 0 : tsk->euid == 0)
-		/* capability granted */
+	if (cap_raised (tsk->cap_effective, cap))
 		return 0;
-
-	/* capability denied */
-	return -EPERM;
+	else
+		return -EPERM;
 }
 
 static int dummy_sysctl (ctl_table * table, int op)
@@ -191,6 +189,10 @@ static void dummy_bprm_apply_creds (stru
 
 	current->suid = current->euid = current->fsuid = bprm->e_uid;
 	current->sgid = current->egid = current->fsgid = bprm->e_gid;
+
+	dummy_capget(current, &current->cap_effective,
+					&current->cap_inheritable,
+					&current->cap_permitted);
 }
 
 static int dummy_bprm_set_security (struct linux_binprm *bprm)
@@ -550,6 +552,9 @@ static int dummy_task_setuid (uid_t id0,
 
 static int dummy_task_post_setuid (uid_t id0, uid_t id1, uid_t id2, int flags)
 {
+	dummy_capget(current, &current->cap_effective,
+					&current->cap_inheritable,
+					&current->cap_permitted);
 	return 0;
 }