I get the above message for a user setup for Shell and SFTP access:
Last login: Fri May 9 16:57:19 2014 from 10.x.x.x
/bin/bash: Operation not permitted
Another account, setup for public/private key access works fine.
I've tried restarting the service (from Services.msc) but no change.
The event viewer gives these errors:
2014.05.09 16:57:19 - error: chmod /dev/pty8 0666 failed: No such file or directory
2014.05.09 16:57:19 - error: chown /dev/pty8 0 0 failed: No such file or directory