I had a go at running dropbear on a rooted HTC Hero and was a bit puzzled by the behaviour. When I booted the phone using the boot.img.insecure originally used to carry out the rooting as described in:
http://phandroid.com/2009/08/04/how-to-gain-root-access-on-your-htc-hero/
and started dropbear with:
dropbear -A -N justme -U 0 -G 0 -C <passwd> -r /system/etc/my_rsa_key -p 2222
(where justme was a cloned root user I had set up) I found I could happily ssh into the phone with ssh justme@ipaddress -p 2222. However, when I executed the same command after booting the phone from the native ROM it would hang after asking for the password. Would anyone have an idea what is going on?