OK, I feel a little silly but maybe there is a non-obvious reason for this behaviour....
I created a non-root user by adding an entry in /etc/passwd, and then ran passwd to set the password on the account.
rec_654:$1$lF$svz1b2jrAFuEpJuVSgXud/:499:100::/home/rec_654:/bin/ash
Then, I created /home/{username} and chown'ed it to that user.
I cannot, however, log in as that user with ssh. The connection is immediately terminated. Here is the tail of logread that shows it happening. (I deliberately logged in once wrong as a sanity check)
Dec 16 12:18:46 (none) kern.info dropbear[991]: Child connection from 192.168.173.22:5276
Dec 16 12:18:56 (none) kern.warn dropbear[991]: bad password attempt for 'rec_654' from 192.168.173.22:5276
Dec 16 12:19:24 (none) kern.notice dropbear[991]: password auth succeeded for 'rec_654' from 192.168.173.22:5276
Dec 16 12:19:24 (none) kern.info dropbear[991]: exit after auth (rec_654): Exited normally
Is there some other thing I need to do to make it possible to add accounts which can log in to the router?