Ran ssh-host-config to install sshd service again after manually deleting the service. Sshd never worked right again, 'net start sshd' fails, 'sssh -D -d - d -d' fails, '/etc/rc.d/init.d/sshd start' fails. File permissions. Deleted cygwin installation and reinstalled. Ran ssh-host-config, sshd worked. Deleted sshd service and ran ssh-host-config again, sshd stopped working.
ssh-host-config was updated for the 3.9 release: date: 2004/09/21 11:35:56; author: dtucker; state: Exp; lines: +1 -1 - (dtucker) [contrib/cygwin/ssh-host-config] Update to match current Cygwin install process. Patch from vinschen at redhat.com. It looks like it might resolve the problem you reported (ssh-host-config is a contributed file).
As I mentioned in my previous comment I believe this is fixed, please reopen the bug if this is not the case.
Close resolved bugs after release.