Ever since I secured file transfers to/from the server with SFTP, the built-in WordPress upgrade function stopped working. In order to get the upgrader working a secure manner (as well as add another level of security to the server) I requested SSH2 installed on our server. I would have installed it myself except that our hosting provider refused to correct some initial problems related to the dedicated box, which made the SSH2 install a pain.

I did find some reference material on the subject at the following: Using SSH to Install/Upgrade and Does your WordPress server support SSH2?