[ALUG] sshd and PAM

I appear to be suffering the riddle of sshd and PAM on one of my Debian Stable boxes. Both boxes have ssh_1%3a3.4p1-1.woody.3 (i386) installed, but only one of them has the stuff in /etc/ssh/sshd_conf about "UsePrivilegeSeparation" (yes), it has decided today to nolonger allow ssh connections with interactive keyboard password entry. Also in sshd_conf the "PAMAuthenticationViaKbdInt" is set to "off" to be compatible with the privilage separation. If I invert these two settings I still can't loggin after it asks about 6 different ways. The maddening thing is even "ssh 127.0.0.1" doesn't work on the bad box - returns "Permission denied, please try again." What should I change to restore normal connectivity? Ta. Tim.