Version: 1.0.1 (using 4.0.1 (KDE 4.0.1), Kubuntu packages) Compiler: gcc OS: Linux (i686) release 2.6.22-14-generic Suppose you type in the Dolphin location bar something like "sftp://username@host". This will connect to host using sftp, and it will display the default folder on that host (probably your home directory on that host). However, since you did not enter a path after the host name, Dolphin assumes that you are in the root directory. Thus, when you attempt to create a folder, it attempts to create that folder in /, and of course fails due to insufficient permissions.
kio_sftp has been rewritten using libssh in trunk (KDE 4.4). If no folder is specified it gets redirected to the home of the folder now.