Trifon, thanks for the keys.  I've tried the following:

1. Create two new user accounts on my machine (up-to-date Jaunty) for users 
test1 and test2
2. Copy rsa1023.pub to /home/test1/.ssh/authorized_keys2
3. Copy rsa1023 to /home/test2/.ssh/id_rsa and set permissions to 600
4. Open GNOME session as test2 and ssh to test1

Result:
The SSH login completes successfully without prompting for a password

Is this what you have tried?

-- 
ssh are using ssh-userauth but ignores private key
https://bugs.launchpad.net/bugs/348126
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