Wow, I got connected... I have been struggling with this for a few days.
So I use Filezilla (
http://filezilla.sourceforge.net/) as my ftp client.
Since I was still having problems, and not getting anywhere with looking at my pam.d/proftpd file I decided to play around with my client for a few.
First off... you HAVE to have puTTY installed on your windows PC.
In Filezilla, add your ISPConfig server in Site Manager.
Under
Servertype: choose
SFTP using SSH2
Then use your ISPConfig user that is configured, e.g. webx_username and the password you assigned to this user.
I got connected and am now happily using if to load files and remove them as well.