I shoudl point out that this problems only occurs for accounts under /home/download
where download has permissions set r--r--r--.
All accounts under home have drwxr-xr-x and work finr with MySEcureShell!

Config is:
## MySecureShell Configuration File ##
#Default rules for everybody
<Default>
        GlobalDownload          0       #total speed download for all clients
                                        # o -> bytes   k -> kilo bytes   m -> mega bytes
        GlobalUpload            0       #total speed download for all clients (0 for unlimited)
        Download                0       #limit speed download for each connection
        Upload                  0       #unlimit speed upload for each connection
        StayAtHome              true    #limit client to his home
        VirtualChroot           true    #fake a chroot to the home account
        LimitConnection         10      #max connection for the server sftp
        LimitConnectionByUser   1       #max connection for the account
        LimitConnectionByIP     2       #max connection by ip for the account
#       Home                    /home/$USER     #overrite home of the user but if you want you can use
                                                #       environment variable (ie: Home /home/$USER)
        IdleTimeOut             5m      #(in second) deconnect client is idle too long time
        ResolveIP               true    #resolve ip to dns
#       IgnoreHidden            true    #treat all hidden files as if they don't exist
#       DirFakeUser             true    #Hide real file/directory owner (just change displayed permissions)
#       DirFakeGroup            true    #Hide real file/directory group (just change displayed permissions)
#       DirFakeMode             0400    #Hide real file/directory rights (just change displayed permissions)
                                        #Add execution right for directory if read right is set
#       HideFiles               "^(lost\+found|public_html)$"   #Hide file/directory which match
                                                                #this extented POSIX regex
        HideNoAccess            true    #Hide file/directory which user has no access
#       MaxOpenFilesForUser     20      #limit user to open x files on same time
#       MaxWriteFilesForUser    10      #limit user to x upload on same time
#       MaxReadFilesForUser     10      #limit user to x download on same time
        DefaultRights           0640 0750       #Set default rights for new file and new directory
#       MinimumRights           0400 0700       #Set minimum rights for files and dirs

#       PathDenyFilter          "^\."   #deny upload of directory/file which match this extented POSIX regex

        ShowLinksAsLinks        false   #show links as their destinations
#       ConnectionMaxLife       1d      #limits connection lifetime to 1 day

#       Charset                 "ISO-8859-15"   #set charset of computer
#       GMTTime                 +1      #set GMT Time (change if necessary)
</Default>

#Rules only for group ftp

#<Group ftp>
#       Download        25 k/s
#       LogFile         /var/log/sftp-server_ftp.log    #Change logfile
#       ExpireDate      "2007-02-28 18:31:01"
#</Group>

#<Group sftp_administrator>
#       IsAdmin         true            #can admin the server
#       VirtualChroot   false           #you must disable chroot to have a full support of admin
#       StayAtHome      true
#       IdleTimeOut     0
#</Group>

#<Group old_client>
#       SftpProtocol            3       #force protocol SFTP
#       DisableAccount          true    #disable account
#</Group>

#Rules only for group ftpnolimit
#<Group ftpnolimit>
#       Download                0       #0 = unlimited
#       IdleTimeOut             0       #no timeout
#       DirFakeUser             false   #show real user on file/directory
#       DirFakeGroup            false   #show real group on file/directory
#       DirFakeMode             0       #show real rights on file/directory
#       HideFiles               ""      #show all files
#       MaxReadFilesForUser     0       #0 = unlimited but still have the restriction MaxOpenFilesForUser
#</Group>

#<IpRange 192.168.0.1-192.168.0.5>
#       ByPassGlobalDownload    true    #bypass GlobalDownload restriction
#       ByPassGlobalUpload      true    #bypass GlobalUpload restriction
#       Download                0
#       DisableAccount          false   #enable account
#       IdleTimeOut             0       #disable timeout
#       LimitConnectionByIP     0       #no limit
#</IpRange>

#<Group trusted_users>
#       Shell           /bin/tcsh       #give a shell access to TRUSTED clients !!!
#</Group>

#<VirtualHost *:22>
#       DirFakeUser     false   #show real user on file/directory
#       DirFakeGroup    false   #show real group on file/directory
#       DirFakeMode     0       #show real rights on file/directory
#       HideNoAccess    false
#       IgnoreHidden    false
#</VirtualHost>

#Include /etc/my_sftp_config_file       #include this valid configuration file