Somebody pulled the plug? Network connection dropped?
Looking at your log entries, NTPD did exactly what it's supposed to: it recognized the error, disabled, synchronized to localhost, waited for the network to come back then synchronized.
The problem is at the other end, the time server went down for some reason (was the box being rebooted, was the intranet traffic taking you out, or something like that?). Same thing happens if you turn off your router or pull the network cable -- NTPD sees it, syncs to localhost for a while (that's why the entry is there in your npt.conf file):
# Undisciplined Local Clock. This is a fake driver intended for backup
# and when no outside source of synchronized time is available. The
# default stratum is usually 3, but in this case we elect to use stratum
# 0. Since the server line does not have the prefer keyword, this driver
# is never used for synchronization, unless no other other
# synchronization source is available. In case the local host is
# controlled by some external source, such as an external oscillator or
# another protocol, the prefer keyword would cause the local host to
# disregard all other synchronization sources, unless the kernel
# modifications are in use and declare an unsynchronized condition.
server 127.127.1.0 # local clock
fudge 127.127.1.0 stratum 10
Hope this helps some.