=== modified file 'bzrlib/tests/test_sftp_transport.py'
--- bzrlib/tests/test_sftp_transport.py	
+++ bzrlib/tests/test_sftp_transport.py	
@@ -38,16 +38,23 @@
         if not paramiko_loaded:
             raise TestSkipped('you must have paramiko to run this test')
         super(TestCaseWithSFTPServer, self).setUp()
-        from bzrlib.transport.sftp import SFTPAbsoluteServer, SFTPHomeDirServer
-        if getattr(self, '_get_remote_is_absolute', None) is None:
-            self._get_remote_is_absolute = True
-        if self._get_remote_is_absolute:
-            self.server = SFTPAbsoluteServer()
+        from bzrlib.transport.sftp import SFTPAbsoluteServer, SFTPHomeDirServer, SFTPServer
+        if getattr(self, '_full_handshake', False):
+            self.server = SFTPServer()
         else:
-            self.server = SFTPHomeDirServer()
+            self._full_handshake = False
+            if getattr(self, '_get_remote_is_absolute', None) is None:
+                self._get_remote_is_absolute = True
+            if self._get_remote_is_absolute:
+                self.server = SFTPAbsoluteServer()
+            else:
+                self.server = SFTPHomeDirServer()
         self.server.setUp()
         self.addCleanup(self.server.tearDown)
-        self._sftp_url = self.server.get_url()
+        if self._full_handshake:
+            self._sftp_url = self.server._get_sftp_url("")
+        else:
+            self._sftp_url = self.server.get_url()
         self._root = self.test_dir
         # Set to a string in setUp to give sftp server a new homedir.
         self._override_home = None
@@ -255,3 +262,9 @@
         self.assertEquals(b2.revision_history(), ['a1', 'a2'])
 
 
+class SFTPFullHandshakingTest(TestCaseWithSFTPServer):
+    """Verify that a full-handshake (SSH over loopback TCP) sftp connection works."""
+    _full_handshake = True
+    
+    def test_connection(self):
+        self.get_transport()

=== modified file 'bzrlib/transport/sftp.py'
--- bzrlib/transport/sftp.py	
+++ bzrlib/transport/sftp.py	
@@ -156,11 +156,11 @@
     def recv(self, n):
         return self.__socket.recv(n)
 
+    def recv_ready(self):
+        return True
+
     def close(self):
         self.__socket.close()
-
-    def recv_ready(self):
-        return True
 
 
 SYSTEM_HOSTKEYS = {}
@@ -230,7 +230,7 @@
     def __del__(self):
         """Should this warn, or actually try to cleanup?"""
         if self.lock_file:
-            warn("SFTPLock %r not explicitly unlocked" % (self.path,))
+            warning("SFTPLock %r not explicitly unlocked" % (self.path,))
             self.unlock()
 
     def unlock(self):