Use a sftpd client to see if ur server configuration is proper.
I used freeftpd (which has sftpd in it). It works just fine. I use anonymous login. So the server doesnt care abt the password at all. This may be a security risk, so you may want to setup Windows NT based authentication on ftpd.
HTH
Sankar.
PS: please remember to rate posts!
Sankar Nair
UC Solutions Architect
Pacific Northwest | CDW
CCIE Collaboration #17135 Emeritus