SSH configuration, publickeys, Permission denied (publickey,password). error

My task: login from Mac OS Snow Leopard client to Ubuntu 10.10 server without password.

Commands:

client$ mkdir ~/.ssh
client$ chmod 700 ~/.ssh 
client$ ssh-keygen -q -f ~/.ssh/id_rsa -t rsa 
Enter passphrase (empty for no passphrase): [empty]
client$ chmod go-w ~/ 
client$ chmod 700 ~/.ssh 
client$ chmod go-rwx ~/.ssh/* 
client$ scp ~/.ssh/id_rsa.pub lorddaedra@server.domain.ltd:~ 
server$ mkdir ~/.ssh 
server$ chmod 700 ~/.ssh 
server$ cat ~/id_rsa.pub >> ~/.ssh/authorized_keys 
server$ chmod 600 ~/.ssh/authorized_keys 
server$ rm ~/id_rsa.pub 
client$ ssh -o PreferredAuthentications=publickey server.domain.ltd 

and…

Permission denied (publickey,password).

Debug output(with -v):

XX-XX-XXX-XXX:~ lorddaedra$ ssh -o PreferredAuthentications=publickey server.domain.ltd -v
OpenSSH_5.2p1, OpenSSL 0.9.8l 5 Nov 2009
debug1: Reading configuration data /etc/ssh_config
debug1: Connecting to server.domain.ltd [XXX.XX.XX.XX] port 22.
debug1: Connection established.
debug1: identity file /Users/lorddaedra/.ssh/identity type -1
debug1: identity file /Users/lorddaedra/.ssh/id_rsa type 1
debug1: identity file /Users/lorddaedra/.ssh/id_dsa type -1
debug1: Remote protocol version 2.0, remote software version OpenSSH_5.5p1 Debian-4ubuntu5
debug1: match: OpenSSH_5.5p1 Debian-4ubuntu5 pat OpenSSH*
debug1: Enabling compatibility mode for protocol 2.0
debug1: Local version string SSH-2.0-OpenSSH_5.2
debug1: SSH2_MSG_KEXINIT sent
debug1: SSH2_MSG_KEXINIT received
debug1: kex: server->client aes128-ctr hmac-md5 none
debug1: kex: client->server aes128-ctr hmac-md5 none
debug1: SSH2_MSG_KEX_DH_GEX_REQUEST(1024<1024<8192) sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_GROUP
debug1: SSH2_MSG_KEX_DH_GEX_INIT sent
debug1: expecting SSH2_MSG_KEX_DH_GEX_REPLY
debug1: Host 'server.domain.ltd' is known and matches the RSA host key.
debug1: Found key in /Users/lorddaedra/.ssh/known_hosts:1
debug1: ssh_rsa_verify: signature correct
debug1: SSH2_MSG_NEWKEYS sent
debug1: expecting SSH2_MSG_NEWKEYS
debug1: SSH2_MSG_NEWKEYS received
debug1: SSH2_MSG_SERVICE_REQUEST sent
debug1: SSH2_MSG_SERVICE_ACCEPT received
debug1: Authentications that can continue: publickey,password
debug1: Next authentication method: publickey
debug1: Trying private key: /Users/lorddaedra/.ssh/identity
debug1: Offering public key: /Users/lorddaedra/.ssh/id_rsa
debug1: Authentications that can continue: publickey,password
debug1: Trying private key: /Users/lorddaedra/.ssh/id_dsa
debug1: No more authentication methods to try.
Permission denied (publickey,password).

So my question is where is my error and how to fix it? Thank you!

P.S.

server$ cat /etc/ssh/sshd_config
# Package generated configuration file
# See the sshd_config(5) manpage for details

# What ports, IPs and protocols we listen for
Port 22
# Use these options to restrict which interfaces/protocols sshd will bind to
#ListenAddress ::
#ListenAddress 0.0.0.0
Protocol 2
# HostKeys for protocol version 2
HostKey /etc/ssh/ssh_host_rsa_key
HostKey /etc/ssh/ssh_host_dsa_key
#Privilege Separation is turned on for security
UsePrivilegeSeparation yes

# Lifetime and size of ephemeral version 1 server key
KeyRegenerationInterval 3600
ServerKeyBits 768

# Logging
SyslogFacility AUTH
LogLevel INFO

# Authentication:
LoginGraceTime 120
PermitRootLogin no
StrictModes yes

RSAAuthentication yes
PubkeyAuthentication yes
AuthorizedKeysFile  %h/.ssh/authorized_keys

# Don't read the user's ~/.rhosts and ~/.shosts files
IgnoreRhosts yes
# For this to work you will also need host keys in /etc/ssh_known_hosts
RhostsRSAAuthentication no
# similar for protocol version 2
HostbasedAuthentication no
# Uncomment if you don't trust ~/.ssh/known_hosts for RhostsRSAAuthentication
#IgnoreUserKnownHosts yes

# To enable empty passwords, change to yes (NOT RECOMMENDED)
PermitEmptyPasswords no

# Change to yes to enable challenge-response passwords (beware issues with
# some PAM modules and threads)
ChallengeResponseAuthentication no

# Change to no to disable tunnelled clear text passwords
#PasswordAuthentication yes

# Kerberos options
#KerberosAuthentication no
#KerberosGetAFSToken no
#KerberosOrLocalPasswd yes
#KerberosTicketCleanup yes

# GSSAPI options
#GSSAPIAuthentication no
#GSSAPICleanupCredentials yes

X11Forwarding no
X11DisplayOffset 10
PrintMotd no
PrintLastLog yes
TCPKeepAlive yes
#UseLogin no

#MaxStartups 10:30:60
#Banner /etc/issue.net

# Allow client to pass locale environment variables
AcceptEnv LANG LC_*

Subsystem sftp /usr/lib/openssh/sftp-server

# Set this to 'yes' to enable PAM authentication, account processing,
# and session processing. If this is enabled, PAM authentication will
# be allowed through the ChallengeResponseAuthentication and
# PasswordAuthentication.  Depending on your PAM configuration,
# PAM authentication via ChallengeResponseAuthentication may bypass
# the setting of "PermitRootLogin without-password".
# If you just want the PAM account and session checks to run without
# PAM authentication, then enable this but set PasswordAuthentication
# and ChallengeResponseAuthentication to 'no'.
UsePAM yes
UseDNS no
AllowUsers lorddaedra

P.P.S.

server$ cat /var/log/auth.log

Feb  3 19:15:38 electra sudo: lorddaedra : TTY=pts/0 ; PWD=/home/lorddaedra ; USER=root ; COMMAND=/bin/cat /var/log/auth.log
Feb  3 19:16:01 electra CRON[19081]: pam_unix(cron:session): session opened for user lorddaedra by (uid=0)
Feb  3 19:16:01 electra CRON[19080]: pam_unix(cron:session): session opened for user lorddaedra by (uid=0)
Feb  3 19:16:02 electra CRON[19080]: pam_unix(cron:session): session closed for user lorddaedra
Feb  3 19:16:02 electra sshd[19088]: Authentication refused: bad ownership or modes for directory /home/lorddaedra
Feb  3 19:16:02 electra sshd[19088]: Authentication refused: bad ownership or modes for directory /home/lorddaedra
Feb  3 19:16:06 electra CRON[19081]: pam_unix(cron:session): session closed for user lorddaedra
Feb  3 19:16:07 electra sudo: lorddaedra : TTY=pts/0 ; PWD=/home/lorddaedra ; USER=root ; COMMAND=/bin/cat /var/log/auth.log


client$ ls -al /Users/lorddaedra/.ssh
total 40
drwx------    6 lorddaedra  staff   204  3 фев 01:54 .
drwxr-xr-x+ 183 lorddaedra  staff  6222 31 янв 11:37 ..
-rw-------@   1 lorddaedra  staff  6148 21 ноя  2008 .DS_Store
-rw-------    1 lorddaedra  staff  1675  3 фев 01:53 id_rsa
-rw-------    1 lorddaedra  staff   427  3 фев 01:53 id_rsa.pub
-rw-r--r--    1 lorddaedra  staff   414  3 фев 01:54 known_hosts


server$ ls -al /home/lorddaedra/.ssh
итого 12
drwx------  2 lorddaedra lorddaedra 4096 2011-02-03 01:55 .
drwxrwxr-x 13 lorddaedra lorddaedra 4096 2011-02-03 01:55 ..
-rw-------  1 lorddaedra lorddaedra  427 2011-02-03 01:55 authorized_keys

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