The 3.9p1 version of the sshd server for cygwin can't be accessed from any computer or localhost. It closes the session with a "connection closed" message and a 255 Exit code after the user is autenticated. It occurs with both password and ssh keys. Tested with different computers with the same result and as I read on "tech.erdelynet.com" forums I am not the only one with the same problem. This is not happening if the latest 3.8 version is installed instead 3.9p1. It works completely OK in that case. The problem is only encountered with 3.9p1 version.
The combination of UsePrivilegeSeparation (on by default) + reexec (also on by default) apparently tickles a bug in Cygwin itself. According to Corinna there are 3 ways to workaround that problem: - Either switch off PrivSep, - or use the -r option to switch off reexec'ing, - or use one of the latest Cygwin developer snapshot from http://www.cygwin.com/snapshots/ The bug should be solved since the 2004-Aug-19 snapshot.
Since this is not actually a bug with OpenSSH, I'm closing this. Please re-open if you can reproduce with the updated cygwin DLL.
Change all RESOLVED bug to CLOSED with the exception of the ones fixed post-4.4.