I've generated a new patch that includes fixes for configure.ac, 
config.h.in.orig, and session.c to include a "configure" managable --with-
chroot option. I've also modified the session.c part of the old patch to 
install correctly with the latest version of session.c.

The patch is included below:

bash-2.04$ cat ~/openssh-3.0.2p1-chroot.patch 
--- openssh-3.0.2p1/session.c.orig      Sat Dec  1 18:37:08 2001
+++ openssh-3.0.2p1/session.c   Thu Dec 20 14:35:11 2001
@@ -1038,6 +1038,10 @@
        struct stat st;
        char *argv[10];
        int do_xauth;
+#ifdef HAVE_CHROOT
+       char *user_dir;
+       char *new_root;
+#endif /* HAVE_CHROOT */
 #ifdef WITH_IRIX_PROJECT
        prid_t projid;
 #endif /* WITH_IRIX_PROJECT */
@@ -1111,6 +1115,24 @@
 
                        if (setlogin(pw->pw_name) < 0)
                                error("setlogin failed: %s", strerror(errno));
+#ifdef HAVE_CHROOT
+                       user_dir = xstrdup(pw->pw_dir);
+                       new_root = user_dir + 
1;                                                                              
    
+                       while((new_root = strchr(new_root, '.')) != NULL) {
+                         new_root--;
+                         if(strncmp(new_root, "/./", 3) == 0) {
+                           *new_root = '\0';
+                           new_root += 2;
+
+                           if(chroot(user_dir) != 0)
+                             fatal("Couldn't chroot to user directory %s", 
user_dir);
+
+                           pw->pw_dir = new_root;
+                           break;
+                         }
+                         new_root += 2;
+                       }
+#endif /* HAVE_CHROOT */
                        if (setgid(pw->pw_gid) < 0) {
                                perror("setgid");
                                exit(1);
--- openssh-3.0.2p1/configure.ac.orig   Thu Dec 20 14:25:33 2001
+++ openssh-3.0.2p1/configure.ac        Thu Dec 20 14:28:58 2001
@@ -1721,6 +1721,18 @@
        ]
 )
 
+# Check whether to enable chroot support
+CHROOT_MSG="no" 
+AC_ARG_WITH(chroot,
+       [  --with-chroot           Enable use of chroot home directories],
+       [
+               if test "x$withval" != "xno" ; then
+                       AC_DEFINE(HAVE_CHROOT)
+                       MD5_MSG="yes"
+               fi
+       ]
+)
+
 # Whether to disable shadow password support
 AC_ARG_WITH(shadow,
        [  --without-shadow        Disable shadow password support],
@@ -2207,6 +2219,7 @@
 echo "                 S/KEY support: $SKEY_MSG"
 echo "          TCP Wrappers support: $TCPW_MSG"
 echo "          MD5 password support: $MD5_MSG"
+echo "                chroot support: $CHROOT_MSG"
 echo "   IP address in \$DISPLAY hack: $DISPLAY_HACK_MSG"
 echo "      Use IPv4 by default hack: $IPV4_HACK_MSG"
 echo "       Translate v4 in v6 hack: $IPV4_IN6_HACK_MSG"
--- openssh-3.0.2p1/config.h.in.orig    Thu Dec 20 14:43:20 2001
+++ openssh-3.0.2p1/config.h.in Thu Dec 20 14:44:08 2001
@@ -780,6 +780,9 @@
 /* Define if you have the `__b64_ntop' function. */
 #undef HAVE___B64_NTOP
 
+/* Define if you want the chroot capability */
+#undef HAVE_CHROOT
+
 /* The size of a `char', as computed by sizeof. */
 #undef SIZEOF_CHAR