I have recently discovered the following: when I attempt to connect to any of our machines that are OpenSSH 5.x (Ubuntu 10 or OpenSuSE 11.x in our case) as one of the users defined in the NIS domain that fails. For instance, me (user bepstein) can SSH into all those machines but not SFTP. I can SFTP into those machines on the network that are OpenSSH 4.x, however (CentOS 5.3 - 5.4, OpenSUSE 10.3).
As a user defined locally on the machine (in /etc/passwd ) I can connect via either SSH or SFTP even if the machine is OpenSSH 5.x.
Some further discussion of that issue is available here:
Any insight into what this problem is and how to fix it will be very much appreciated.