Nothing in either file. The secure.log doesn't even log anything other than the SSH login I had to check the log files, even when I had opened a separate window and made a subsequent SFTP attempt. The system.log only registered the 2 sudo requests.
I tried Fugu as well below, and got no love there either. At this stage I'm just wondering if there is some very strange corruption at somewhere along the way, but not sure even how I could verify that. I tried to troubleshoot it on the client side by going into a new user account that had never previously had any sftp/ssh activity at that server, and as expected I got the requests to confirm the identity of the host and password for my user account, but after entering the password I got the same result.
This no longer appears to be a problem specific to Snow Leopard though, as just on a whim I logged into another Tiger Server (OS 10.4.11) on my local network and tried to sftp from there to the problem server, and got the same "subsystem request failed on channel 0" result.
The only things that I can think of now that could be at issue would be something attached to my specific user account, but I don't know what since I can SSH successfully, or something unique to my network, but given that I can SFTP to other servers from my network, I don't know what that would be either.
Whatever it is, I'm at a loss as to what to check from here.