Integration with windows terminal does not work

I followed the instructions as listed here to open ssh in windows terminal
https://winscp.net/eng/docs/integration_putty#wt

The windows terminal window opens ok, but I get an error [error 0x80070002 when launching `PASSWORD ssh.exe USERNAME@IPADDR -p 22 -t "cd /tmp/ ; /bin/bash"']
where PASSWORD, USERNAME and IPADDR are the values I am using.

If I uncheck the flag "Remember SSH password and pass it to putty", I get a ssh login prompt.
This is slightly inferior as I have to enter the ssh password, where as with putty, I don't.

It seems WinSCP is not forwarding the password correctly to Windows terminal, and hence it cannot execute the ssh command properly.

What the "Remember SSH password and pass it to PuTTY" does is that it adds the -pw password parameter to (putty.exe) commandline. Obviously it cannot work with wt.exe. So the behaviour you are getting it expected. Actually the Win32-OpenSSH section explicitly states that you need to turn the option off:
https://winscp.net/eng/docs/integration_putty#win32-openssh

You can override how the password is provided with the !P pattern. But I do not know if there is a way to provide a password to the Windows version of ssh.exe. See also https://stackoverflow.com/q/23419659/850848

As even the above question suggests, you can try to use WSL version of ssh with sshpass package. See also https://winscp.net/eng/docs/integration_putty#wsl

Thanks