I have managed to get ctags to work with SFTP files with partial success. The files are stored on a unix server, and I run ctags on there to produce the tags file. Then I use a Perl script I wrote to change all the file names in the tags file to a syntax UltraEdit can understand, e.g. FTP::<FTP account name>\/<path>. Then I put the resultant tags file on a local drive visible to Windows. I set up a project in the same way as you did, and associated the tags file with the project.
It partially works, in that when I try to find a symbol, the correct file is loaded up, but it doesn't jump to the actual line containing the reference.
Does anyone else know a better way of doing it? I've tried other ways of accessing the files under Windows, e.g. trying to mount an sftp server as a drive, but can't find a free way to do this. If I could do this and see the files as if they were on a local drive, ctags should work completely.