@blitz99, if I'm right, older passwords that have more than 16 characters continue to work on most Live ID forms, however the newer web forms which Photosynth uses only send the first 16 characters typed, since that is all that has been allowed to be registered in recent history.
If an older password is longer than that, then it will not match what you originally entered and the login will fail.
I know that it is inconvenient to have to change your password, but please just try it and I don't believe you'll ever see this error again. Chances are that more of Microsoft's services will use this modern 16 character login limit in the future, so you'll be doing yourself a favor to just update your password to fit within their modern limits.
If you do try this and it does not resolve the error, please write back and let me know, but so far everyone who has tried it has reported success to me.