Connection via guacamole CLI is not possible
There are two layers to this issue
The easy:
The file /etc/ssh/sshd_config has a value PasswordAuthentication no. This should definitely be set to yes or commented (yes by default). The same issue was spotted on other images and this solution helped. In case of this issue, the guacamole CLI lets you input login, does not even ask for password and fails. Make sure to restart the service (service sshd restart) so that this change applies.
The hard:
The guacamole CLI does not even let you input the password and refuses the connection as soon as the login is typed in. I believe this is another issue not really connected to the easy part. This was not present on the other images and most importantly, this was not present on the previous version of this image (kali-2020.4-0.1.0), where only the easy problem above would occur.
Hints:
I tried to fiddle with other values in sshd_config which did not help, but it may be the case that some combination will get this to work. It may also be an issue with VNC. The connection over guacamole GUI works, which is also very strange (can only be tested on deployed instances, guacamole does not work in local demo and that is alright).
This functionality works on other debian based images - and also works on on the previous version of this very Kali image (kali-2020.4-0.1.0). I noticed that the other debian based images (debian 10, for instance, have slightly different sshd_configs, which could mean that some new and possibly broken ssh service is used on this Kali image, that does not allow the guacamole CLI).
I also tried updating the image to the latest version (https://cdimage.kali.org/kali-2022.3/) which did not help either. The result of this is in https://gitlab.ics.muni.cz/muni-kypo-images/kali/-/blob/update-kali-to-new-version/CHANGELOG.md - only restricted to the branch and an image was only created on the testing OpenStack project with commit id, so the tag 0.1.2 was not used up and it should still be possible to use it for future updates on the master branch.