Can only ssh into Ubuntu 12.04 alpha machine when logged into console

I recently installed the latest Ubuntu 12.04 64bit alpha (2?) onto a VMware virtual machine in order to check things out.

One strange thing I've encountered is that I can only successfully ssh into the machine if I am logged into the console. If I log out from the console, I get a permission denied.

This is pretty baffling so I'm hoping someone else has seen this.

The following is the output.

OpenSSH_5.6p1, OpenSSL 0.9.8r 8 Feb 2011
debug1: Reading configuration data /Users/foo/.ssh/config
debug1: Applying options for b06
debug1: Applying options for *
debug1: Reading configuration data /etc/ssh_config
debug1: Applying options for *
debug1: auto-mux: Trying existing master
debug1: Control socket "/Users/foo/.ssh/mux/ssh_mux_foo" does not exist
debug1: Connecting to foo [xx.xx.xx.xx] port 22.
debug1: Connection established.
debug1: identity file /Users/foo/.ssh/id_rsa-4096 type 1
debug1: identity file /Users/foo/.ssh/id_rsa-4096-cert type -1
debug1: identity file /Users/foo/.ssh/id_rsa type 1
debug1: identity file /Users/foo/.ssh/id_rsa-cert type -1
debug1: Remote protocol version 2.0, remote software version OpenSSH_5.9p1 Debian-2ubuntu2
debug1: match: OpenSSH_5.9p1 Debian-2ubuntu2 pat OpenSSH*
debug1: Enabling compatibility mode for protocol 2.0
debug1: Local version string SSH-2.0-OpenSSH_5.6
debug1: SSH2_MSG_KEXINIT sent
debug1: SSH2_MSG_KEXINIT received
debug1: kex: server->client aes128-ctr hmac-md5 none
debug1: kex: client->server aes128-ctr hmac-md5 none
debug1: SSH2_MSG_KEX_DH_GEX_REQUEST(1024<1024<8192) sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_GROUP
debug1: SSH2_MSG_KEX_DH_GEX_INIT sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_REPLY
debug1: Host '[foo]:22' is known and matches the RSA host key.
debug1: Found key in /Users/foo/.ssh/known_hosts:1
Host key fingerprint is 

debug1: ssh_rsa_verify: signature correct
debug1: SSH2_MSG_NEWKEYS sent
debug1: expecting SSH2_MSG_NEWKEYS
debug1: SSH2_MSG_NEWKEYS received
debug1: Roaming not allowed by server
debug1: SSH2_MSG_SERVICE_REQUEST sent
debug1: SSH2_MSG_SERVICE_ACCEPT received
debug1: Authentications that can continue: publickey
debug1: Next authentication method: publickey
debug1: Offering RSA public key: /Users/foo/.ssh/id_rsa-4096
debug1: Authentications that can continue: publickey
debug1: Offering RSA public key: /Users/foo/.ssh/id_rsa
debug1: Authentications that can continue: publickey
debug1: No more authentication methods to try.
Permission denied (publickey).

Solution 1:

This is just a guess, but as far as I know Ubuntu encrypts the user home folders by default. When you are not logged in, ~/.ssh/authorized_keys will not be readable by sshd on the host machine and therefore your pubkey authentication fails.