I almost gave up myself when trying to set it up. its really worth it once you get it working. for me it would authenticate but not connect. I forget if the error message was the same as you are getting, sounds vaguely similiar. turned out that I needed to add a line to /etc/hosts.allow 
<br>sshd: <a href="http://127.0.0.1">127.0.0.1</a>: ALLOW<br>this was on a new install of centos 5.<br>