Comment 38 for bug 297301

Disagree. It does matter, even if there is a fundamental reason why
good behavior is impossible -in general-, but it can be made good
with specific servers (by parsing their error messages), then it should
do that; making T. have bad behavior for everyone if it can be avoided
is not desirable.

In any case, why can't Thunderbird *ask* the user what to do, offering three choices:
    - Retry with saved password
    - Cancel (stop trying) and retain the existing saved password
    - Change password (leads to new-password dialog)

I can't see why it is every desirable to silently forget the old password.