What is outlined in the blog post above is exactly what I was after, but for some reason on Ubuntu server if you use what is the final edit in that post:
Subsystem sftp /usr/lib/openssh/sftp-server -u 0002
That results in "Connection closed" messages when you try to log in. The solution above that one works, just note the minor modification of pointing to /usr/lib/... instead of /usr/libexec/...
Subsystem sftp /bin/sh -c ‘umask 0002; /usr/lib/openssh/sftp-server’
Restart ssh and you should be in business.
Thanks to Jeff for that very helpful blog post, and to Thad Meyer for pointing it out to me just last week (coincidentally enough).