There isnt something already listening on udp 514 is there?
netstat -upnl | grep ":514"

Sent: Wed Nov 17 2010 16:23:44 GMT-0700 (Mountain Standard Time)
From: keshava V <mv.keshava@gmail.com>
To: Syslog-ng users' and developers' mailing list <syslog-ng@lists.balabit.hu>
Subject: Re: [syslog-ng] Syslog-ng not receiving messages

Further,
I have tried setting the kernel parameters without any luck

[root@aspsyslog ~]# sysctl -w net.core.rmem_max=8388608
[root@aspsyslog ~]# sysctl -w net.core.rmem_default=1048576

[SNIP]