WinSCP2 uses scp1 even when "Use scp2 with scp1 compat" checked

I have only scp2 available on the UNIX side. I have "Use scp2 with scp1 compat" checked in the SHELL tab, but the log still shows that scp1 is not found. I have tried this with the ssh preference set to 1, 2, and 2 only. I have also created a file on the UNIX side .ssh/environment that has PATH=/usr/local/bin:$PATH. I have tried all the combinations, with and without this environment file. I still get this error message:

WinSCP: this is begin-of-file
Sending NULL.
scp: warning: Executing scp1 compatibility.
scp: FATAL: Executing ssh1 in compatibility mode failed (Check that scp1 is in your PATH).
WinSCP: this is end-of-file:255

I am using a proxy on port 1080. I have tried it with both packet forwarding on and off.

Any ideas?

WinSCP always needs scp1.