Eric Schlosser says, in Command and Control:

On January 25, 1995, the launch of a small research rocket by Norway prompted a warning at the Kremlin that Russia was under attack by the United States. Russian nuclear forces went on full alert. President Boris Yeltsin turned on his “football,” retrieved his launch codes, and prepared to retaliate. After a few tense minutes, the warning was declared a false alarm. The weather rocket had been launched to study the aurora borealis, and Norway had informed Russia of its trajectory weeks in advance.

He cites: David Hoffman, “Cold War Doctrines Refuse to Die,” Washington Post, March 15, 1998.

Hoffman is a serious dude. In his Pulitzer-winning book, The Dead Hand, he doesn't mention the incident, though it seems like a natural thing to mention in the context of the book (which is about the legacy of Cold War WMDs in Russia).

In another source (Sokolski and Tertrais, eds., Nuclear Weapons Security Crises), it is reported that:

In January 1995, the launch of a Norwegian sounding rocket triggered the activation of Russia’s strategic emergency command, control, communications, and intelligence (C3I) system (“Kazbeck”) and of the Chegets [the Russian nuclear "football"]. Oslo had notified the Russian Foreign Ministry of the impeding launch, but launch notification had gotten lost in the meanders of the post-Soviet bureaucratic disorder: It had failed to reach the appropriate on-duty personnel. Given the unusual size and trajectory of the rocket, some Russian officials genuinely feared, for several minutes, a strike that might have been an Electro-Magnetic Pulse (EMP) attack.

They cite Peter Pry, War Scare: Russia and America on the Brink, which I haven't read but it seems to devote an entire chapter to the issue (as evidenced through the Amazon "click to read" feature).

These sources seem to indicate that while Russia was informed about the launch, the information did not get to the right places. They seem to have wondered, for a few minutes at least, if it was an EMP attack, meant to disable their command and control systems (and thus a prelude to a real attack). They also seem to have resolved it rather quickly, albeit only after it got to a state of significant readiness.

Oh, and as to how it worked then, this is how Hoffman describes the basic system as of the late 1980s, in The Dead Hand:

1985, the Soviet designers finished work on a nuclear “football,” in this case a briefcase known as the Cheget. Three were prepared: to accompany the general secretary of the party, the defense minister and chief of the General Staff. However, the Cheget was for information only; it could not be used to launch, and did not have a button to press. The officer carrying the Cheget would plug into a wider communications network, known as Kavkaz, designed just for the national leadership. Then the general secretary could give permission to the military, also plugged into Kavkaz, to launch. This “permission command” would then be transformed into a “direct command” by the General Staff. The direct commands were authenticated, and if proven correct, would become “launch commands” sent to the missiles.

And later:

In the Soviet command and control system, as it stood in 1991, three leaders—the president, the defense minister and the chief of the General Staff—would have to give a permission to launch. launch. All three were accompanied by the Cheget suitcases. This permission would be passed simultaneously to the General Staff headquarters in Moscow and the three commanders-in-chief: of land-based rockets, naval and air forces. Once permission was given, the actual launch order would be issued by the General Staff to the three commanders-in-chief. Thus, Gorbachev’s suitcase was not a nuclear button but a communications link for monitoring and decision making. There was also the option of switching on the secret Perimeter system. The nuclear suitcase and Perimeter were put into operation shortly before Gorbachev took office.

So it doesn't sound like a very hair-trigger system, unless it had been modified substantially by 1995, which I doubt.