I’ve chmoded my keypair to 600 in order to get into my personal instance last night,
And this is the way it is supposed to be.
From the EC2 documentation we have “If you’re using OpenSSH (or any reasonably paranoid SSH client) then you’ll probably need to set the permissions of this file so that it’s only readable by you.” The Panda documentation you link to links to Amazon’s documentation but really doesn’t convey how important it all is.
The idea is that the key pair files are like passwords and need to be protected. So, the ssh client you are using requires that those files be secured and that only your account can read them.
Setting the directory to 700 really should be enough, but 777 is not going to hurt as long as the files are 600.
Any problems you are having are client side, so be sure to include local OS information with any follow up questions!