Ssh – PuTTY fatal error: Server refused to start a shell/command

What does "unable to scp files" any more mean? What is the error message they get?

Check your logs (/var/log/syslog, /var/log/messages, /var/log/daemon.log) to see if the SSH server is throwing any errors. They should be pretty descriptive. With the logs and the customer's error, we should be able to narrow down what the problem is.

Edit

The logs you posted indicate the most likely problem:

scp:Scp2/scp2.c:1679: argv[16] = sftp
...
scp:SshFileXferClient/sshfilexferc.c:981: ssh_file_client_receive_proc: bad VERSION

Looks like this thing is trying to use the sftp protocol rather than scp directly. OpenSSH, by default, disables the sftp subsystem. I don't know when this change was made, but it sounds likely. Add this to your sshd_config and see if it changes things:

Subsystem sftp internal-sftp

You could use just passwd -e username. The command chage -d 0 username sets the last login to January 1'st 1970.