I have continually had this issue with both Entourage 2004 and 2008 with Exchange 2003 where I get the message:
Mail could not be received at this time.
The server for account ... Returned the error "Login failure: unknown
user name or bad password." Your username/password or security settings may
be incorrect. Would you like to try re-entering your password?
However, there is nothing that is wrong with my password at all, it's actually Entourage choking trying to sync with my junk mail folder.
My symptoms are explained exactly here:
Anyone have any ideas? The only way around this is for me to go into Exchange directly through either OWA or outlook and delete my junk mail folder, but I have to now do this every day.