They just edited index.php, erased the contents and replaced with the standard Ha Ha!
Now my directory permissions are 755 on the Serendipity folder. I am now on Serendipity 0.8.3 and PHP 4.3.10. I have also deleted the serendipity_XML RPC.php file.
What else can/should I do. FTP and blog passwords have also been changed although I change them regularily.