To the best of my knowledge, the "Invalid username/password" issue is only caused by using an old password that has more than 16 characters. For at least the last half decade, all WLID sites have only allowed a maximum of 16 characters when entering a password and it is because the web form that the Photosynth app is using only accepts the first 16 characters you type that your password is failing.
Visit http://account.live.com/ and reset your password and you should be all set, since it won't allow you to type anything longer than 16 characters.
Apologies for the inconvenience.
Your fellow photosynther,