Hello,
I've looked and couldn't find decent docs on this so for those of you
who are lookin', this is a quick howto on how to setup the
Cygwin/OpenSSH daemon on M$ Windows 2003. This will fix the passwordless
(ssh key) login issue.

1. Install Cygwin with the openssh binaries....
2. After completing the Cygwin setup, goto the cygwin command prompt and
type 'ssh-host-config'
3. Answer 'y' when asked if you want to sshd with privilege separation.
4. Answer 'y' when asked if user sshd should be created by the script.
5. Answer 'y' when asked if you want sshd to be created as a service.
6. Create a new windows user named "sshdproc" or whatever you wish the
sshd process account username to be. If you happen to notice the sshd
user being disabled, don't enable it!
7. Place the sshdproc user in the "Administrators" group.
8. Give the sshdproc user the following system rights:
	* Create a token object
	* Log on as a service
	* Replace a process level token

	And for security.....
	* Deny log on locally
	* Deny access to this computer from the network

9. Reconfigure the "CYGWIN sshd service" to run as the new "sshdproc"
user.
10. At the cygwin command prompt type 'mkpasswd -l |grep sshdproc >>
/etc/passwd <enter>'
11. Type 'touch /var/log/sshd.log <enter>'
12. Type 'chmod 644 /var/log/sshd.log <enter>'
11. Type 'chown sshdproc /var/empty /var/log/sshd.log /etc/ssh_*
<enter>'
12. Type 'cygrunsrv --start sshd <enter>'

That should be it.. Hope this helps! :)

Best,
Mark J. de Jong