It not helps. Moreover, I found that I am able to do 'ssh localhost' but
unable to do ssh from any other machine, with exact the same password.
Try commenting out the pam_opieaccess line in /etc/pam.d/sshd.
Yes, it was the reason!
Normally OPIE not accepts plain Unix password remotely, and it is right,
because of cleartext. But it is wrong for sshd, because no cleartext
sended for PasswordAuth. It seems that opieaccess in pam.d/sshd should not
fails by default or maybe even not present there.