Is there any custom validation set for the Password to match a particular pattern, before it gets accepted? I have seen some cases wherein there's some custom validation set on the Password fields, for which a particular pattern(at least 1 uppercase, at least 1 lowercase, at least 1 numeral, etc.) must be followed for the password to get saved.
When you try to create a new user with the similar passwords, are you able to create those users successfully, or do you get similar error?
Are you able to set the same password(for which you are getting that error) through Touch UI (Tools -> Security -> Users) ?