Enabling remote login without password authentication
Allow me to answer myself as I found a resolution.

If PasswordAuthentication no doesn't work on its own (and I read in some situations it may) make sure to uncomment and set to "no" this:

UsePAM no


Kudos for this resolution go to Mac OS X Hints - http://hints.macworld.com/article.php?story=20050815135941513&amp;lsrc=osxh.