problems with ChrootDirectory

I recently compiled/installed openssh version OpenSSH_5.0p1.  I'm trying to 
make use of the ChrootDirectory to restrict a particular user to only be able 
to use sftp and in their homedir.  From what I've read, I should be able to 
accomplish this by adding something like this to the sshd_config:

Match user jsmith
    ForceCommand internal-sftp
    ChrootDirectory /space/storage/jsmith

I created user jsmith, with his homedir being /space/storage/jsmith.

I restarted sshd.

When I try to connect as that user, the following is returned:

Connection to 10.2.2.135 closed by remote host.
Connection to 10.2.2.135 closed.

The sshd log has an entry:
Jul  9 21:31:12 happybox sshd[8741]: [ID 800047 local5.crit] fatal: bad 
ownership or modes for chroot directory "/space/storage/jsmith"

The permissions of /space/storage/jsmith seem ok:

drwxr-xr-x   3 jsmith   other        512 Jul  9 21:19 jsmith

The .ssh directory is 700, just like my other users (and myself) who can 
connect normal.

I thought maybe the "ForceCommand internal-sftp" was giving me problems, so I 
removed that from the sshd_config to see if I could simply make this user have 
a shell account chroot'd to his homedir.  But, the same error was returned.

If I remove the entries from the sshd_config file, the user can connect fine, 
but not chrooted.

Are there some specific permissions or entries in my sshd_config that I'm 
missing?
Any help would be great.

Thanks!