This problem still exists in Natty 11.04.

Somehow I missed this bug and also reported it as Bug #799072. Now marked as a 
duplicate of this.
In Bug #799072 I attached logs from auth.log after putting sshd into "LogLevel 
DEBUG" both before and after nautilus-bzr was removed, which may help.

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https://bugs.launchpad.net/bugs/540280

Title:
  openssh (or gvfs) asks for a password everytime I change directory in
  sftp

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