SFTP is prompting for password

[guyverdh at mchsi.com]

Couple of things to check.

#1 - settings in sshd_config file on remote server that you are connecting to 
with sftp.
        make certain that the appropriate authentication method is enabled.
        if using RSA key, set RSAAuthentication yes  (otherwise set to no)
        if using DSA key, set PubKeyAuthentication yes (in previous versions, 
you could also set DSAAuthentication yes to get the same effect)

#2 - permissions of home directory for userid logging in as.
        I'm not 100% certain what the exact restrictions are supposed to be, 
however, I typically set the home directory of the user to 750 (rwxr-x---), and 
then set the .ssh directory under the users home directory to 700 (rwx------).

Also, make certain that the permissions on the authorized_keys or 
authorized_keys2 file (depending on which is configured in your sshd_config 
file), is set to 600 as well (rw-------).

Making these changes as needed should make it possible for you to use public 
key authentication.

Hope this helps.