Try setting RSAAuthentication to yes, and make sure you have ssh_host_rsa_key in your /etc/ssh directory, or wherever sshd_config is located. Restart sshd. There should also be some messages in /var/log/messages that may help you troubleshoot.
To login to KDE as a remote desktop type session you will probably want to look into tightvnc, and piping the data through an ssh tunnel.
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