Sorry to open up an old thread, but I also have a wl-500g:
This is what I get via telnet session:
Originally Posted by shinji257
Is this package gone now? Using firmware 188.8.131.52-9...
$ ipkg update
Updated list of available packages in /opt/lib/ipkg/lists/wl500g
Updated list of available packages in /opt/lib/ipkg/lists/unslung
$ ipkg install openssh-sftp-server
Nothing to be done
An error ocurred, return value: 4.
Cannot find package openssh-sftp-server.
Check the spelling or perhaps run 'ipkg update'
EDIT: Fixed as per pvarela's instructions in #4, except no patching was needed for me (/usr/sbin/dropbear already pointed to /opt/libexec/sftp-server)