OS X Server network sync issues
From: http://unixsystems.blogspot.com/2012/06/fixing-ssh-daemon-authentication.html

If you see something similar to:
sshd: Authentication refused: bad ownership or modes for directory /Your/Home/Path

You have a home directory permission problem.
change to that user if not already one and execute:
chmod go-w ~/
chmod 700 ~/.ssh
chmod 600 ~/.ssh/authorized_keys 

It will restore your permissions and you should be able to connect.