Hi Jules,
Try the following if you are using 4.1.2 as a couple of entries need to be added to the /etc/ssh/sshd.conf for SSH2 to work. Things are fine in 4.1.1 so no need to do anything if that is what you are using.
You should have the following three HostKey lines in /etc/ssh/sshd_config:
HostKey /etc/ssh/ssh_host_key
HostKey /etc/ssh/ssh_host_dsa_key
HostKey /etc/ssh/ssh_host_rsa_key
e-smith 4.1.2 is missing the DSA entry and maybe the RSA (can't remember) this problem came about w/OpenSSH 2.05 updates.
The preferred way to correct this is not by adding these lines directly to the config file but by adding a new fragment in the e-smith template directory. Create new fragment 20HostKeyRSA like 20HostKeyDSA. Now your SSH2 protocol should be accepted.
Glenn