I know, for example, that Putty-based terminal seems to handle this while the Rebex one does not. But what about the built in SFTP and SCP clients? Not sure if that is a custom piece of work or based on some other open source code base.
which version of Royal TS are you using? The latest versions should handle MFA requests in rebex based terminal and SFTP/SCP connections.
I can't really tell. We have tested MFA prompts - not sure if DUO was among those but the implementation/prompts are quite generic. I suggest you double-check your configuration, maybe also test with PuTTY and rebex based plugin for SSH. Should you still face problems, please open a support ticket here: https://www.royalapplications.com/go/support-ticket-new
Please include screenshots, maybe a short video which shows the process in PuTTY compared to rebex.