The release notes at http://www.cknotes.com/?p=433 say
(SFTP) The ForceV3 property will now default to true because it eliminates many problems with various servers that have problems with SFTP v4 and above.Maybe you remember, but I saw an issue when calling initializeSftp returning false. The lastErrorText mentioned a blogpost that suggested the user did not have enough privileges. That didn't really help, the user could login/download with FileZilla without problem.
Could it be that this new release fixes this problem?
The issue you mentioned regarding InitializeSftp could happen when an SSH user account is not allowed access to SFTP, or if SFTP is not enabled for the SSH server. In that case, connecting and authenticating with the SSH server succeeds, but the failure occurs when the SSH client attempts to request the SFTP subsystem (which is what happens in the call to InitializeSftp).
As this customer was able to use FileZilla (sftp) so his privileges should be ok.
I will ask him to try again with a new build.
FileZilla provides a unified user interface for both FTP (i.e. the FTP protocol) and SFTP (i.e. Secure File Transfer over SSH). Make sure the customer is actually using SSH/SFTP, and not FTP.