What is 'VC3'?
The 3rd virtual console?
Yes

I don't have this problem with my current Knoppix install - 3.2. I ran diff on the old and new /etc/inittab files and they are the same.
but deleting /dev/tty is definetively the wrong way
I have read in other forums where the tty files can become corrupted and this is how they fix the problem.

here's my /etc/inittab file

1:12345:respawn:/sbin/getty 38400 tty1
2:2345:respawn:/sbin/getty 38400 tty2
3:2345:respawn:/sbin/getty 38400 tty3
4:2345:respawn:/sbin/getty 38400 tty4
5:2345:respawn:/sbin/getty 38400 tty5
6:2345:respawn:/sbin/getty 38400 tty6
I'll try yours and see if this clears up the problem.

Thanx
BD