just a thought: this might be worth putting on the wiki under troubleshooting

On 4/30/07, Jeremy Gray <jrgray@gmail.com > wrote:
issue solved! indeed, it was a bit silly: tcpwrappers was preventing sshd from connecting to localhost, as I discovered when poring through /var/log/secure . simply adding
sshd: 127.0.0.1: ALLOW
to /etc/hosts.allow and all is well.

thanks for being patient with my newbie confusion!