I've modified my SMProxy tool to act as a tool for server admins. You can run SMProxy locally to allow players that have updated their clients to connect to your (not yet updated) server. Grab a copy of it here: (Download)
How it works is this: you run SMProxy on your server, alongside the Minecraft 1.2.3 (or Bukkit 1.2.3) server. It provides an alternate server address for updated players. For example, if your normal server address is "my.server.com:25565", then the alternate server address would be "my.server.com:25564".
SMProxy runs on Windows, Linux, and Mac. For Linux and Mac, you need to have Mono installed. You can get Mono on Linux (for Ubuntu and others like it) with "apt-get install mono-complete". For Fedora (and others like it), use "yum install mono-complete".
To set this up for your server, simply run SMProxy from the command line, like this (Windows):
"SMProxy.exe 127.0.0.1:[server port here]"
For Linux and Mac:
"mono SMProxy.exe 127.0.0.1:[server port here]"
[server port here] should be the port of your existing server. When you do this, SMProxy will start up and players with 1.2.4 can connect to [server address]:25564.
If you'd like to customize the port that SMProxy uses, you can use "-p [port]". For example, if you wanted 25566 instead of 25564, you could use "-p 25566".
Have fun, and let me know what you think!
On a side note, I got this working within an hour of 1.2.4's release - that's a new personal record!
Having problems with flying? Start SMProxy like this: "SMProxy.exe -sp CA:CS 127.0.0.1"
That looks like you haven't forwarded your ports, or your server isn't running quite right. SMProxy will attempt to connect to your server like normal, and if it isn't running (or you've gotten the port wrong), it won't be able to. Make sure you forward all the relevant ports as well.