found that the problem was I was trying to login to phpbb and joomla in the same script. Worked until 3.4 joomla. Apparently phpbb common.php has something that causes the fatal classloader.php error. Removing the phpbb include for common.php solved the error.

Still having trouble completing login to joomla this code snip doesn't work anymore

 $credentials = array( 'username' => $username, 'password' => $password);
 $options=array( 'remember' => 'boolean' );
 $login_site =& JFactory::getApplication('site');
 $login_site->initialise();
 $login_site->login($credentials, $options);

and instead now gives:
Notice: Uninitialized string offset: 0 in /cms/libraries/joomla/user/helper.php on line 341

Can someone post an example of working external login code for 3.4

This:

$options=array( 'remember' => 'boolean' );

Should use a boolean value (true or false) not the string 'boolean'. For example:

$options = array('remember' => false);

This:

$login_site =& JFactory::getApplication('site');

Should be:

$login_site = JFactory::getApplication('site');

And finally about the error I guess your user has an empty password in the database? The error is caused when trying to get the first char of the password stored in the database:

elseif ($hash[0] == '$')

So I guess someone managed to save an empty password.

so in my setup I'm using phpbb3auth plugin to authenticate against phpbb. so maybe that's why I get the empty password error not sure.

I even added an echo statement - and there is a password being passed (a hash) and that is not blank so not sure why then the error. Didn't have the problem in Joomla 3.3.6 so this is not a password issue but there is some subtle change to the API

in any case I got it working (able to login now) using the following code:

// Instantiate the application.
$app = JFactory::getApplication('site');

// Initialise the application.
$app->initialise();

JPluginHelper::importPlugin('user');
$options = array();
$options['action'] = 'core.login.site';
$options['remember'] = boolean ;
$response->username = new stdClass;
$response->username = $username;
$result = $app->triggerEvent('onUserLogin', array((array)$response, $options));

But I still can't get remember me option to work - not sure if this API call even supports it. tried using TRUE instead of the word boolean or 'boolean' and didnt work

regarding this below

elseif ($hash[0] == '$')
So I guess someone managed to save an empty password.

it works if I hardcode test with the actual plaintext password but not the hash. The external database has the password stored as a hash and this worked up til 3.3.6. Is there some way to signify a hash is being passed?

$credentials = array( 'username' => $username, 'password' => $password);
$options=array( 'remember' => 'boolean' );
$login_site =& JFactory::getApplication('site');
$login_site->initialise();
$login_site->login($credentials, $options);

i was able to get remember me working by following tips at this site to fix session.cookie lifetime on the server settings: http://forum.joomla.org/viewtopic.php?f=470&t=457307&start=30

added following to index.php in joomla - hopefully helps others out.

ini_set('session.cookie_lifetime', 5366060);

Closing as you have resolved your issue