This error is thrown by
Connect method, which means that it occurred before public key authentication was attempted. It actually occurred even before a secure SSH session was established.
Please create a communication log using Sftp object's LogWriter property, but use
LogLevel.Verbose level instead of
LogLevel.Debug. Check the log to make sure it doesn't contain any sensitive information (such as passwords, although none should be there if the error occured before authentication) and either mail it to firstname.lastname@example.org or post it here. Based on the log, we should be able to tell what is going on. Thanks!