Capistrano setup fails on Authentication

I'm trying to get a site setup with capistrano and after following the dreamhost wiki for capistrano I try to run the setup with 'cap setup'
and it fails during authorization.

here are some of the debug results using "ssh_options[:verbose] = :debug" in the deploy.rb

[DEBUG] -- transport.session: waiting for packet from server...
[DEBUG] -- transport.incoming_packet_stream: reading 8 bytes from socket...
[DEBUG] -- transport.incoming_packet_stream: packet length(52) remaining(48)
[DEBUG] -- transport.incoming_packet_stream: received: "3000000'publickey,password,keyboard-interactive00"
[DEBUG] -- transport.session: got packet of type 51
[DEBUG] -- userauth.driver: all authorization methods failed
/opt/local/lib/ruby/gems/1.8/gems/net-ssh-1.0.9/lib/net/ssh/session.rb:129:in `initialize': tdog (Net::SSH::AuthenticationFailed)
from /opt/local/lib/ruby/gems/1.8/gems/net-ssh-1.0.9/lib/net/ssh.rb:47:in `start'

I set the database server to be the same as the web server and the setup worked fine.