I\'m using cygwin on Windows 7 64 bit and I\'m trying to ssh -vvv localhost
OpenSSH_6.1p1, OpenSSL 1.0.1c 10 May 2012
debug1: Reading configuration
Actually, I realized the reason why I was getting the same error was because sshd was not running on the VM server I was trying to connect to :) Running it fixed the prob for me.
Shortly speaking, it doesn't indicate an error. It's normal.
You can reference my answer here:
Trying to use RSA Keys to SSH into EC2, Getting: Incorrect RSA1 identifier... permission denied (public key)
As stated in comments, this error is OK.
Did you check /etc/hosts.deny? My guess is you have an sshd: x.x.x.x
entry in there