I'm trying to set up sftp-server but the client is getting an error, Connection closed by server with exitcode 1

/var/log/auth.log (below) doesn't help much, how can I find out what the error is?

I'm running Ubuntu 10.04.1 LTS

sshd[27236]: Accepted password for theuser from (my ip) port 13547 ssh2
sshd[27236]: pam_unix(sshd:session): session opened for user theuser by (uid=0)
sshd[27300]: subsystem request for sftp
sshd[27236]: pam_unix(sshd:session): session closed for user theuser

Update: I've been prodding this for a while now, I've got the sftp command on another server giving me a more useful error.

Request for subsystem 'sftp' failed on channel 0
Couldn't read packet: Connection reset by peer

Everything I've found on the net suggests this id a problem with sftp-server but when I remove the chroot from sshd config I can access the system. I assume this means sftp-server is accessible and set up correctly.