The problem is that you have not set up your chroot jail properly... Something is missing. As I've said numerous times throughout the documentation, setting up a chroot jail is very system dependent, so if you've read the CHROOT file carefully and followed the directions there carefully, and it still doesn't work, then I almost certainly can't help you. But then, if you had done all that, you wouldn't need to be looking here...
Note that if you are using rssh with Solaris 9, FreeBSD, AIX 5.2, or probably other operating systems, you will need to copy your system shell into the chroot jail, because wordexp() uses it to expand command-line arguments on those platforms. See the CHROOT file for more details.
There is a script called mkchroot.sh included with the source and the RPM packages. For most Linux users this should do the job, though it may need some small modifications for paths of some files. However it seems that on recent Linux distros, the script is missing something important, and I haven't yet figured out what that is... If you are able to identify it, please post to the mailing list to let me (and everyone else) know. If you run into this problem, and can't figure out what is missing, I've found that copying all of /lib into the jail seems to fix it. Not an ideal solution, but it works.