It finally worked for me!
I was updating my iPhone yesterday (as I'm doing with the iPad now) and I had some problems with password as well... We have one iPad, 2 iPhones and one iPod - for all of them we use the same Apple ID (which was also the same for iTunes purchases). It wouldn't accept my password either (or my ID, I still don't know exactly what happened) but I solved it by
changing this main Apple ID to an e-mail ID form... Before, our ID used to be a "nick" kind of ID. Then, I also had to set a
NEW password, because mine had 6 digits and now they "forced" me to change it to an
8 digit password, with at least one capital letter. I have tried to change it back to my old 6-digit password afterwards, but it won't accept it.
Then, since now there's this iCloud thing, with the "Find my iPhone" feature, I had to set a SECOND Apple ID... Just because if I use the same one, all of our devices will have the same contacts, mails, music, etc, and we don't want that. So, I configured my own iCloud, with a
new Apple ID which will be used just for the iCloud, and it gave me an "@me.com" email account
to be used as a new ID so we can store our data separately.
Now, to start using my devices, I had to
CHANGE the former Apple ID on my device, to my new "email" ID kind, use my new 8-digit password (go to settings/iCloud for the iCloud, delete the old ID, and put the new one... For iTunes purchases, settings/store, and either change it if you want to use your new ID for everything, or just adjust the new 8-digit password you created for the main Apple ID you used to have), and voilá, it's all working good. Well my iPhone is working... My iPad is just about to finish the update so I'm sure I'll have to do all this all over again... And I cursed big time at iTunes and Apple last night, until I figured this whole mess up - but now that it's working, I am SO happy with it! The iOS5 rocks!!!
I'm sorry if this sounded confusing - it WAS very confusing to solve it!!! - but I'll be glad to try to help anyone through it, if I can!
I basically just followed whatever the screen "told" me to do, and said "to heck with it, I'll risk it", and it worked!