chale, you can ssh & sftp without having to turn on "Remote Login" (which enables your built in SSH server) via Sharing in the Preferences. the ssh/sftp client will take care of auto-negotiating a key from the server you're contacting. you might be prompted if you want to accept such a key from the server, in which case you click yes/ok.
if you're looking for a good SFTP client, i HIGHLY RECOMMEND Fugu. it's a graphical client utilizes the built in SFTP client in the system. if you don't want to pay for Transmit or MacSFTP, then Fugu is definitely the way to go.