Installed FreeBSD 11 and added an additional "user" with it's pw. Set root pw during install. I can get the ssh login prompt on the IP but it demands password authentication key?

The server has disconnected with an error. Server message reads:
A protocol error occurred. Change of username or service not allowed: (root,ssh-connection) -> (steve,ssh-connection) . I edited /etc/ssh/sshd_config to change PermitRootLogin to "yes" and rebooted box (actually, first restarted sshd, didn't work and then rebooted server). Still does not work on user steve nor root. What gives?

It is not very good practice to ssh into a remote server as root. I suggest you ssh as a non-privileged user and then su - to get root.

Use keys, no password authentication at all.