Upgrade of OpenSSH leads to Nautilus being able to connect remotely via SFTP. 

Reported:

http://scientificlinuxforum.org/index.php?showtopic=2962&st=0&#entry18677

When trying to connect to remote shares freshly or via bookmarks, following
error message is encountered:

"Could not open location sftp://username@server"
"Error reading from unix: input/output error"

Involved packages (both i686 and x86-64):

openssh-5.3p1-104.el6
openssh-askpass-5.3p1-104.el6
openssh-clients-5.3p1-104.el6
openssh-server-5.3p1-104.el6

Initially noticed following application of the above updates on a laptop.
Was able to replicate/confirm the issue on a virtual machine.

 
It doesn't look to be the first time an OpenSSH update broke SFTP via
Nautilus (reports with identical symptoms and error message from late 2010,
specifically related to GVFS):

https://bbs.archlinux.org/viewtopic.php?pid=820037

https://bugs.archlinux.org/task/20724

https://bugs.gentoo.org/show_bug.cgi?id=335316#c8

https://bugzilla.gnome.org/show_bug.cgi?id=629184

Hope this helps in fixing this issue.