WordPress won't recognise FTP password for upgrades

look in your root to see if an .htaccess file was actually created
if not, go back to dashboard and set permalinks again
do you get a success message? or code to put in an .htaccess file?

if it is a windows server, you may be stuck with default permalinks, but review this
http://codex.wordpress.org/Using_Permalinks#Permalinks_without_mod_rewrite

if server is linux, any permalinks should work – ask host if not

when you get that sorted, add these constants to your wp-config.php for taking care of upgrades, etc.
http://codex.wordpress.org/Editing_wp-config.php#WordPress_Upgrade_Constants