Try changing StrictModes to look like:
...in /etc/ssh/sshd_config

I remember having exact same issues (albeit I was using publickey auth, only), for reasons unknown. I *ensured* that all files are owned correctly, and permissions are *not* set to "allow write" for world., still, strictmode was kicking in.

I scratched my head about it for a while, then just shrugged and left it as "no", cause I maintain correct permissions for my ssh configs, anyway. Still, it is very interesting, that you run into it just after installing CSSU, not ssh-server update, as I thought - it may be worthwile to left a note to CSSU guys, then.

Of course, only if it really help in your case as I suspect - otherwise all of the above is moot

/Estel