sshd status shows running..

ssh is running..without any issue.
let me tel you I am able to connect but it hangs the moment I provide password.

Where are you logging in from? Did you run "ssh -X <user>@<hostname>"? You need to use the -X option. If you are logging in using putty, then you need to enable X forwarding and install an X server on windows (such as Cygwin/X). You also need to allow X forwarding in the /etc/ssh/sshd_config file. Ssh sets up a proxy connection using "local:10.0".

Reading though the /etc/ssh/sshd_config file and the sshd_config manpage would be a good idea. You will want to only allow protocol 2 and use "AllowUsers" or "AllowGroups" to disallow all others. The config file is well commented. You can learn how to configure public key authentication by reading the comments above the "UsePam yes" line.

Allowing root logins is a bad idea. It should only be allowed for unattended servers that use ssh for syncing or a cron backup job. And then, you should configure public key authentication and disallow root logins. Root is a known user and the most popular target of brute force attacks. For working manually, one should log in as a regular user and then use sudo or "su -".

Again, can you ssh/putty from the same machine or are they different machines?

It sounds like a firewall issue - are you blocking port 22 for some subnets?

Are there any relevant messages in messages in /var/log/secure?

On the putty screen, it is trying to use port 22, etc.

Also, I assume you are doing this from Windows, Have you tried telnetting in

telnet server_IP 22

I am accessing from remote Windows Machine
No iptables is running.
The /var/log/secure says:
telnet server_IP 22 says:

and If I press any key then:'
it shows "connect lost to host"