This particular issue has happened to two of my clients on separate sites and on separate hosting platforms. Their passwords work just fine for a while, then they suddenly stop working. At first I thought they were mistyping, but it seems this is not the case. (They can't reset their passwords, either.)
For the first client, I went directly into the database using phpMyAdmin and changed the password and used MD5 to encrypt it. This seems to have fixed the issue, and the new encrypted string (once the database double encrypted it) is slightly different than the original encrypted string.
I'm going to try this method again with the second client, but was wondering if anyone else is having similar issues? My password works just fine - but I created my User account before I upgraded to 3.0.1. Is there a problem with encryption using 3.0.1?