Accessing SFTP over "Connect to Server..." asks for password 3 times after connection and when changing directories

Binary package hint: nautilus

When connecting to a server using "Connect to Server..." in Nautilus, you are first prompted for a password ("Enter password for SSH as <username> on <servername/IP>") with three options: Forget password immediately/Remember password until you logout/Remember forever.

Having correctly entered the password, you are prompted again for the password 3 times in a simpler prompt ("<username>@<server>'s password:"). However, it doesn't matter what you type in here, it will still enable you to login. Also, once logged in, every time you change directories you are asked for the password 3 times but you can type anything or simply press Esc 3 times and you get to change directories. Not only is this annoying when navigating directories, it is a bit disturbing that a password prompt appears that doesn't care what you enter.

Note that the options for remembering the password in the first password prompt does not have any bearing on the issue: it happens regardless of which one you choose.

The issue also occurs when you connect through Alt-F2 and type in sftp://<username>@<server> .
However, the issue does not occur when connecting through Dolphin or Konqueror.

Confirmed when connecting to servers running openssh on Ubuntu Server Editions 10.04 and 11.04.

I have enabled "LogLevel DEBUG" in /etc/ssh/sshd_config and attached the output in /var/log/auth.log for connecting using Nautilus and also through KDE's Dolphin. Based on this, at face it appears that when connecting through Nautilus, sshd accepts the initial credentials, then invokes the sftp subsystem. At this point, it seems Nautilus does not supply credentials whereas Dolphin does. Although since a valid password does not even need to be entered, it would seem that sshd's initial acceptance of the credentials overrides what the sftp subsystem requested.

Connecting client release: Ubuntu 11.04 (Desktop 32bit)
Issue relates to: /usr/bin/nautilus-connect-server
Nautilus version: 1:2.32.2.1-0ubuntu13