Right, simple console connection with SSH won't work - menuconfig needs xterm or similar.
And for the sake of correctness - I now recalled that nconfig is actually not the task bitbake can execute for you (indeed) - sorry, it was a little too long ago I did that.
I actually used to do "bitbake linux-yocto-clanton -c devshell" and then in the devshell window I ran "make nconfig". That could be a solution for someone facing this error due to reasons I mentioned in my post.
Glad you've got it solved, anyway. :-)