THIS IS RESOLVED. THE ISSUE WAS COOKIE BLOCKING WITH MY SECURITY SOFTWARE, NOT IN MY BROWSER. I THINK IT WOULD BE USEFUL TO LEAVE IT HERE IN THE DB FOR PEOPLE WITH THIS PROBLEM TO FIND BUT FEEL FREE TO DELETE IT :)
Through Fantastico on BlueHost I just replicated the same WordPress 2.6.2 problem in 2 different directories.
I'm using Firefox 3.0.3 on XP and have no problems with another older WordPress version I host on another domain.
1) I go to http://www.mydomain.com/wp-admin
Try logging in with the admin user name and pw.
ERROR: Incorrect password.
ERROR: Cookies are blocked or not supported by your browser. You must enable cookies to use WordPress.
At this point the URL is: http://mydomain.com/wp-login.php
My settings allow cookies for all sites.
2) I do lost password.
The URL sent in the password is like:
I click it and get to:
With error: Sorry, that key does not appear to be valid.
It's an infinite loop of not being able to get it.
I'm not a developer and don't know about PHP Admin so I'm hoping there's some other solution :)