I\'ve just setup my EC2 server following this video here exactly - http://www.youtube.com/watch?v=bBajLxeKqoY
I even chose the same server type, everything went well
You will be asked for password when you enable PasswordAuthentication yes in your sshd_config. Try changing that to no. that should fix it.
PasswordAuthentication yes
Just for anyone else that might have the same problem