Comment 18 for bug 1225327

fedora 18's sftp does do it, but the one I built doesn't (although it's linked against a locally built libedit in /usr/local, which I had not noticed):

$ stty -echo; /usr/bin/sftp -o preferredauthentications=password localhost; stty sane
dtucker@localhost's password:
Connected to localhost.
sftp> cd /tmp
sftp> exit

$ ldd /tmp/openssh-5.3p1/bin/sftp | grep libed
 libedit.so.0 => /usr/local/lib/libedit.so.0 (0xb7744000)

$ stty -echo; /tmp/openssh-5.3p1/bin/sftp -o preferredauthentications=password localhost; stty sane
Connecting to localhost...
dtucker@localhost's password:
sftp> sftp> Remote working directory: /tmp
sftp>

$ rpm -q libedit
libedit-3.0-7.20120601cvs.fc18.i686

the local one is libedit-20100424-3.0