The error message should be like:
error: Cannot recv data: Warning: Permanently added '10.66.6.214' (RSA) to the list of known hosts.
Permission denied, please try again.
Permission denied, please try again.
Permission denied (publickey,gssapi-keyex,gssapi-with-mic,password). : Connection reset by peer

The "Connection reset by peer" is from errno set by failed read() operation. what libvirt does is to concatenate the string to the ssh error string with the colon ":".
But because ssh error string ends with a carriage return '\r' before concatenating, it becomes
...
Permission denied (publickey,gssapi-keyex,gssapi-with-mic,password).\r :
Connection reset by peer

The terminal interprets '\r' as "move the cursor back to the start of the current line", so the results becomes:
...
: Connection reset by peerey,gssapi-keyex,gssapi-with-mic,password).

the errno string messed up with ssh error string.
What we are gonna do is remove the ending '\r' from ssh error string.

patch sent to upstream
https://www.redhat.com/archives/libvir-list/2012-July/msg00724.html

commit 5b924be906160ac3db884dfb6a063db83f192e65
Author: Guannan Ren <gren>
Date:   Wed Jul 18 23:02:02 2012 +0800

    rpc: remove trailing whitespace character in error string
    
    Instead of only removing the ending newline character, it is
    better to remove all of standard whitespace character for the
    sake of log format.
    
    One example that we have to do this is:
    After three times incorrect password input, virsh command
    virsh -c qemu://remoteserver/system will report error like:
    
    : Connection reset by peerey,gssapi-keyex,gssapi-with-mic,password).
    
    But it should be:
    Permission denied (publickey,gssapi-keyex,gssapi-with-mic,password).
    : Connection reset by peer
    
    The reason is that we dropped the newline, but have a '\r' left.
    The terminal interprets it as "move the cursor back to the start
    of the current line", so the error string is messed up.

Verify this bug with 
libvirt-0.10.0-0rc0.el6.x86_64

input incorrect passwd 3 times 

# virsh -c qemu+ssh://10.66.5.12/system list
root.5.12's password: 
root.5.12's password: 
root.5.12's password: 
error: Cannot recv data: 2012-08-06 05:58:54.155+0000: 22189: info : libvirt version: 0.10.0, package: 0rc0.el6 (Red Hat, Inc. <http://bugzilla.redhat.com/bugzilla>, 2012-08-02-03:44:27, x86-007.build.bos.redhat.com)
2012-08-06 05:58:54.155+0000: 22189: warning : virFileClose:65 : Tried to close invalid fd 7
Permission denied, please try again.
Permission denied, please try again.
Permission denied (publickey,gssapi-keyex,gssapi-with-mic,password).: Connection reset by peer
error: failed to connect to the hypervisor

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

http://rhn.redhat.com/errata/RHSA-2013-0276.html