Even I have PermitEmptyPasswords no (standard configuration from qa0404), when the password is deleted from /etc/shadow (ie: there is empty field with pasword in shadow file), the ssh daemon allow to anybody log in when supply any non-empty pasword (but did not allow to log-in when user type no password). I newer see this bug before. It seems that there is serious bug in openssh server daemon in log-in logic.
This is intertwined with the nullok option to pam_unix, which allows access to any account which has an empty crypted password field (in /etc/passwd or in /etc/shadow). So while sshd will reject an empty password immediately if configured to do so, it will pass a non-empty password along to pam_unix, which will allow access. If you remove the "nullok" option from the lines in /etc/pam.d/system-auth which refer to /lib/security/pam_unix.so, does this resolve the problem?
Confirmed