I am a citizen of India and relocated from US to Singapore in 2006. I was employed in US on an H1B visa. In 2007, I took an early distribution of US$20,000 from my 401K account. The institution withheld 30% from my distribution and sent me a Form 1042-S. I will appreciate if someone could explain me the tax impact. Do I have to pay 30% + 10% penalty?

If you received a Form 1042-S (which may be the correct form, but it does not sound right to me), then you can probably just pay the income taxes due and avoid the 10% Early Withdrawal Penalty.

What tax rate you pay depends on your overall income.

I don't know what rule would take you out of the 10% penalty. I think you owe it.