This is done on top of Kfurge's firmware, with dropbear installed according to his instructions from the optware/oleg repository. This already gives you secure file transfer through scp, but I needed sftp too. This seems easy, but there is a trick : read through the end.

sftp-server is in the openssh package. The easy way to install it is

sudo ipkg update
sudo ipkg install openssh

is also requires openssl and zlib, so :

sudo ipkg install openssl
sudo ipkg install zlib

Now the trick to make it work:

WARNING : Before you do this trick, it's really wise to reactivate telnet access in rc.local, just in case you screw up your dropbear and lock yourself out of your router...

The dropbear version I which got installed following the instructions (0.48.1-1) is hard-coded to launch sftp-server from /usr/libexec while it gets installed on the hdd in /opt/libexec (the standard "optware" path, hence the name). I did not feel like setting up a development environment to recompile my own dropbear version. I did it the lazy and dirty way, simply changing "usr" to "opt" right in the binary, and it worked!

To do this, I transfered the dropbear binary (/opt/sbin/dropbearmulti ; dropbear is just a link to this file) to my Ubuntu pc and used sed:

sed 's/\/usr\/libexe/\/opt\/libexe/g' dropbearmulti > dropbearmod

and then replaced the original binary by the new file, with proper rights.

I saw afterwards that sed comes with busybox, so you should be able to do this trick in place. I didn't try.