Check the permissions of the ssh command itself:
ls -l /usr/bin/ssh
-rwxr-xr-x 1 root root 311216 2007-10-17 20:05 /usr/bin/ssh
You may have rwx----- permissions.
Another potential gotcha is the permissions of your private key:
-rw------- 1 jschiwal jschiwal 1675 2007-11-11 21:07 id_rsa
ssh will refuse to run if anyone else could read the file.
Given that "ssh --help" gives you a permission error, it sounds like the permissions on the ssh client (/usr/sbin/ssh) are wrong rather than an authentication problem.
Also, since the error message comes from bash rather than ssh or PAM, this also indicates a permission problem with the /usr/bin/ssh file.