Over the last few weeks I had managed to get my iPhone to reject my password randomly, or at least what seemed like random events. Pretty soon I noticed a pattern that it was only triggered when I had accidently hit the Emergency Call button on the bottom right hand corner of the number keypad.
Doing a restart, switch off and back on, resolves the problem and it recognizes my password again. I am unsure if apple knows about this bug or not and can only hope they fix it with the next firmware release.
p.s.: As far as I know this only works if you have an exchange account enabled on your iPhone, but let me know if you can prove otherwise.