Comment 3 for bug 1053893

I think this should be fixed in 0.7.5.
It doesn't do it automatically, but if you want pwauth on, you can just specify:
   ssh_pwauth: True

and it should enable it correctly.

I think i'd rather do require this to be explicitly done (it can be done in /etc/ cloud/cloud.cfg.d or user-data) than doing it automatically. Additionally, I don't think that there is a ton of value in disabling ssh key auth, or in not starting ssh.

I'm going to mark this fix-released based on the above. If you disagree, feel free to re-open and comment.