LinuxQuestions.org - [SOLVED] ssh fails

the password file says /bin/bash for all the users and the sshd_config is as follows: most of it is pounded out

cat sshd_config
# $OpenBSD: sshd_config,v 1.72 2005/07/25 11:59:40 markus Exp $

# This is the sshd server system-wide configuration file. See
# sshd_config(5) for more information.

# This sshd was compiled with PATH=/usr/bin:/bin:/usr/sbin:/sbin

# The strategy used for options in the default sshd_config shipped with
# OpenSSH is to specify options with their default value where
# possible, but leave them commented. Uncommented options change a
# default value.

#Port 22
#Protocol 2,1
#AddressFamily any
#ListenAddress 0.0.0.0
#ListenAddress ::

# HostKey for protocol version 1
#HostKey /etc/ssh/ssh_host_key
# HostKeys for protocol version 2
#HostKey /etc/ssh/ssh_host_rsa_key
#HostKey /etc/ssh/ssh_host_dsa_key

# Lifetime and size of ephemeral version 1 server key
#KeyRegenerationInterval 1h
#ServerKeyBits 768

# Logging
# obsoletes QuietMode and FascistLogging
#SyslogFacility AUTH
#LogLevel INFO

# Authentication:

#LoginGraceTime 2m
PermitRootLogin yes
#StrictModes yes
#MaxAuthTries 6

#RSAAuthentication yes
#PubkeyAuthentication yes
#AuthorizedKeysFile .ssh/authorized_keys

# For this to work you will also need host keys in /etc/ssh/ssh_known_hosts
#RhostsRSAAuthentication no
# similar for protocol version 2
#HostbasedAuthentication no
# Change to yes if you don't trust ~/.ssh/known_hosts for
# RhostsRSAAuthentication and HostbasedAuthentication
#IgnoreUserKnownHosts no
# Don't read the user's ~/.rhosts and ~/.shosts files
#IgnoreRhosts yes

# To disable tunneled clear text passwords, change to no here!
PasswordAuthentication yes
#PermitEmptyPasswords no

# Change to no to disable s/key passwords
#ChallengeResponseAuthentication yes

# Kerberos options
#KerberosAuthentication no
#KerberosOrLocalPasswd yes
#KerberosTicketCleanup yes
#KerberosGetAFSToken no

# GSSAPI options
#GSSAPIAuthentication no
#GSSAPICleanupCredentials yes

# Set this to 'yes' to enable support for the deprecated 'gssapi' authentication
# mechanism to OpenSSH 3.8p1. The newer 'gssapi-with-mic' mechanism is included
# in this release. The use of 'gssapi' is deprecated due to the presence of
# potential man-in-the-middle attacks, which 'gssapi-with-mic' is not susceptible to.
#GSSAPIEnableMITMAttack no

# Set this to 'yes' to enable PAM authentication, account processing,
# and session processing. If this is enabled, PAM authentication will
# be allowed through the ChallengeResponseAuthentication mechanism.
# Depending on your PAM configuration, this may bypass the setting of
# PasswordAuthentication, PermitEmptyPasswords, and
# "PermitRootLogin without-password". If you just want the PAM account and
# session checks to run without PAM authentication, then enable this but set
# ChallengeResponseAuthentication=no
UsePAM yes

#AllowTcpForwarding yes
#GatewayPorts no
X11Forwarding yes
#X11DisplayOffset 10
#X11UseLocalhost yes
#PrintMotd yes
#PrintLastLog yes
#TCPKeepAlive yes
#UseLogin no
#UsePrivilegeSeparation yes
#PermitUserEnvironment no
#Compression delayed
#ClientAliveInterval 0
#ClientAliveCountMax 3
#UseDNS yes
#PidFile /var/run/sshd.pid
#MaxStartups 10

# no default banner path
Banner /etc/default/welcome.msg

# override default of no subsystems
Subsystem sftp /usr/lib/ssh/sftp-server

# This enables accepting locale enviroment variables LC_* LANG, see sshd_config(5).
AcceptEnv LANG LC_CTYPE LC_NUMERIC LC_TIME LC_COLLATE LC_MONETARY LC_MESSAGES
AcceptEnv LC_PAPER LC_NAME LC_ADDRESS LC_TELEPHONE LC_MEASUREMENT
AcceptEnv LC_IDENTIFICATION LC_ALL