Hi.
Firt off, afaik you can't 'block inheritance' on a local policy - not the least reason being that is is always the first policy applied. If the setup is as you state then it sounds like the domain policy either isn't being applied at all OR that no domain policy contains log on locally settings. Remember that if the setting is configured at the local level, and no site \ domain \ ou policy has conflicting settings for those rights, the local policy will apply. create a new ou \ policy on the domain, specifically set the logon right to allow you access, and move your server into the OU - you can choose block inheritance on the new ou to be doubly sure.
If that doesn't work, open gpedit on a domain machine and connect to the server - note you can't change security settings on the server this way. Add a startup script to the machine policy on the server that uses secedit (secedit /? at the command line for details) to apply a security template allowing you access. Either copy the template over or, if you can't access over the network, have the startup script build it by echoing line for line into a template file that you create on the fly. Reboot the machine and that should be it......