openssh debian bug?

[Alex]

I spent the last couple of hours trying to figure this out.  We upgraded
to sshd version OpenSSH_3.8.1p1 Debian and now "password" login no longer
works... however keyboard-interactive login still works.  the result of
this is that while openSSH clients still function, ssh applications like
MindTerm do not.

here is the debug dump from the login session:
Jun 25 21:47:50 m1 PAM_unix[16269]: (su) session opened for user root by
acd(uid
=500)


Jun 25 21:48:01 m1 PAM_unix[16271]: (cron) session opened for user root by
(uid=
0)
Jun 25 21:48:01 m1 PAM_unix[16271]: (cron) session closed for user root
Jun 25 21:48:26 m1 sshd[12231]: debug1: Forked child 16291.
Jun 25 21:48:26 m1 sshd[16291]: Connection from 192.168.1.1 port 3168
Jun 25 21:48:26 m1 sshd[16291]: debug1: Client protocol version 2.0;
client soft
ware version MindTerm_2.4.1
Jun 25 21:48:26 m1 sshd[16291]: debug1: match: MindTerm_2.4.1 pat
*MindTerm*
Jun 25 21:48:26 m1 sshd[16291]: debug1: Enabling compatibility mode for
protocol
 2.0
Jun 25 21:48:26 m1 sshd[16291]: debug1: Local version string
SSH-2.0-OpenSSH_3.8
.1p1 Debian 1:3.8.1p1-3.backports.org.1
Jun 25 21:48:31 m1 sshd[16291]: debug1: PAM: initializing for "acd"
Jun 25 21:48:31 m1 sshd[16291]: debug1: PAM: setting PAM_RHOST to
"hostname.host.com"
Jun 25 21:48:31 m1 sshd[16291]: debug1: PAM: setting PAM_TTY to "ssh"
Jun 25 21:48:31 m1 sshd[16291]: Failed none for acd from 192.168.1.1 port
3168 s
sh2
Jun 25 21:48:34 m1 sshd[16291]: Failed password for acd from 192.168.1.1
port 31
68 ssh2

any advice greatly welcome!

thanks,
-Alex