Are the deletions totally random or does the first letter or two of the password not register?
I was only on Jaguar (OSX.2) for a short time but I noticed that my password wasn't accepted a couple of times (like fifteen times).
I found that, if I waited a few moments after the password box appeared before typing in my name and password, it worked. If I was too quick the darn thing ate the first few letters and kicked me out.
My take on this was that OSX wasn't quite as fast as what we were used to and I was jumping the gun on the keyboard a bit.
Don't know if this will help...but that was my experience with OSX passwords.