I’m having the same problem as well, on the server which hosts my sites. It’s a local provider, and not GoDaddy or any other big ones. I suspect it has something to do with the ftp authentication, since when I normally login to sftp with Filezilla it logins into the following address:
host: [email protected]:22
Now when the auto install runs for a theme and it asks for ftp or sftp, it seems to default to port 21, but in my case, our server runs their sftp on port 22, not 21. I’ve tried every permutation I can think of for host names, with and without ports, with no success. When I do a manual login test without the port number in Filezilla it says my host is running SSH-1.99-OpenSSH_4.6-sshjail.
Not sure if this helps at all, or what port others may need to login to. It’s really a shame that this auto install isn’t working, and have to go back to the old ftp work around… ??