Dropbear SSH closing connection when attempting to connect as a non Root User

hmm I’m not able to replicate your behaviour. I created a simple demo user using adduser, and was able to login via SSH right after.

root@DietPi3:~# adduser demo
Adding user `demo' ...
Adding new group `demo' (1001) ...
Adding new user `demo' (1001) with group `demo' ...
Creating home directory `/home/demo' ...
Copying files from `/etc/skel' ...
New password:
Retype new password:
passwd: password updated successfully
Changing the user information for demo
Enter the new value, or press ENTER for the default
        Full Name []: x
        Room Number []: x
        Work Phone []: x
        Home Phone []: x
        Other []: x
Is the information correct? [Y/n] y
root@DietPi3:~#



 ─────────────────────────────────────────────────────
 DietPi v7.2.3 : 22:54 - Sat 06/05/21
 ─────────────────────────────────────────────────────
 - Device model : RPi 3 Model B+ (armv7l)
 - Uptime : up 1 minute
 - CPU temp : 39'C : 102'F (Cool runnings)
 - LAN IP : 192.168.0.12 (eth0)
 - Info Text : !!! DEMO 32bit !!!
 ─────────────────────────────────────────────────────


demo@DietPi3:~ $

are you able to share cat /etc/passwd
Probably you might going to hide personal data