I did some testing over the past couple of days and was able to reproduce the issue you're seeing. SVN+SSH is a different kind of animal in that all of the authentication happens within SSH, rather than within the Subversion client. As a result, the commands issued by Toad need to be formatted differently than standard Toad/SVN connections.
I can try to fix this in the next beta that will be starting up here soon. In the meanwhile, as a workaround, I would recommend adding the username to your Repository URL connection string when creating your connection, and leaving the password field blank. You'll also need to add "%40" (the URL encoded value for '@') between the username and server, otherwise SVN may interpret the server name as a revision specifier and return a different error.
Here's an example of what I'm using in my testing locally:
For SSH connections, make sure you have your local TortoisePlink settings correctly mapped to your private key, and that your public key is correctly installed on the server. The fact that it asked you for your password suggests that something may not be linking properly through TortoisePlink.
One word of caution I've noticed in my local testing: SSH is fairly finicky in its connection. If the command is formatted incorrectly, or perhaps if it has a missing or invalid username in the connection string, the whole command-line can appear to freeze. That seems to be a result of the connection failing to complete an SSH tunnel, Unfortunately, that may cause Toad to freeze as well as it's waiting for a response from the server, and in these cases, the server never returns a response. In my research, I found there are a number of articles online that recommend against using SSH and talk about alternative ways to encrypt a connection to Subversion through its own svnserve daemon (mostly using SASL). If you have the flexibility, it might be worth looking into that as an alternative as it seems to be quite a bit more straight-forward in its configuration.
Either way, I hope this helps in getting you set up within Toad 12.9. As soon as I have a permanent fix in place for the 12.10 beta, I'll post another response here to let you know.