So my problem was due to a chroot issue which also prevents Putty logins from working as it was assigned no bash. Looking around on the forum it seems chroot SFTP users is not supported on SME Server 8.x. The most relevant and recent info I found is a bug report,
http://bugs.contribs.org/show_bug.cgi?id=3178#c17.
Unnilennium 2013-06-16 20:56:23 MDT
this bug is for sme9 .
open SSH version is too old in sme 8 / centos 5. However you can find a version recent enough for sme8 in centalt repo if you trust to use this repo.
What is the official status of chrooting SFTP users (specific users only for SFTP use) in SME 8.x without making modifications beyond the server manager portal?
EDIT: Okay going through some other articles related to other distros I just want to clear up what I understand by chroot SFTP.
- Chroot SFTP user is restricted to a home directory. Has full access to his home directory but cannot move beyond his home directory.
- Chroot SFTP user is only for SFTP and cannot log in via SSH or console.
- The chroot SFTP will not effect other users accounts.