With "ChallengeResponseAuthentication no" on sshd_config, PAM authentication is completely disabled. Most users won't realize it because sshd fallbacks to shadow auth, but aditional restrictions on PAM conf will not work. You can confirm this behavior by enabling/disabling ChallengeResponseAuthentication and requiring pam_deny.so for sshd auth. It was working on versions up to 3.7.1p2
Additional PAM restrictions are still enabled, just not the PAM "password" restrictions. I.e. account and session controls are still enforced. Besides, the comment for UsePAM in sshd_config is fairly clear (though not completely explicit): # Set this to 'yes' to enable PAM authentication (via challenge-response) # and session processing. Depending on your PAM configuration, this may # bypass the setting of 'PasswordAuthentication' and 'PermitEmptyPasswords'
This has been fixed, the development snapshots have SSH password authentication via PAM too (using a "blind" conversation function). This will be in the next major release (ie 3.9x). Please try a snapshot: ftp://ftp.ca.openbsd.org/pub/OpenBSD/OpenSSH/portable/snapshot/ and re-open this bug if the problem is not resolved.