Failing to connect to server via SSH - "Server refused to allocate pty"

If you have console access

mount devpts /dev/pts -t devpts

Did you tried to re-create pty and tty devices ?

[email protected]:~# /sbin/MAKEDEV tty
[email protected]:~# /sbin/MAKEDEV pty

It seems to be a known issue on virtual servers...

If you don't have access to any shell, you could try sending the command via ssh :

florian@localmachine:~$ ssh [email protected] "/sbin/MAKEDEV tty"
florian@localmachine:~$ ssh [email protected] "/sbin/MAKEDEV pty"

Edited to reflect your comment :

If you use a chroot, you also have to mount /proc, /dev and /sys :

root@h1696522:/# mount -o bind /proc /repair/proc
root@h1696522:/# mount -o bind /dev /repair/dev
root@h1696522:/# mount -o bind /sys /repair/sys

It should work now.

The times I have encoutered this error I fixed it certifying that the udev package was installed and running. Udev takes care of creating device nodes when they are needed, like the PTS/x that are needed by ssh. Give it a try.