@mnglfiddle:
You shouldn't have to be root, unless your distro's USB setup is weird/stupid/misconfigured, but let's not delve into that
.
But since you *are*, the file in question will be root's ~/.ssh/known_hosts not yours (so, most likely /root/.ssh/known_hosts).
If you haven't enabled the ssh over wifi setting, a blank (or anything, really) password should work, that's what the readme refers to. Check your config.