I am seeing a similar problem on my phone and my wife's phone. They are both set to backup to a Windows 7 Professional x64 machine. For months they were working fine but now they just hang when they try to do their nightly backup. When I go to test the "account" I get the same issue reported initially-- a toast message "Plain text passwords are disabled" on the first attempt, and then if I attempt to test the credentials again it just hangs forever with the spinning ring.
Does anybody have any idea what causes this or how to fix it? I don't think I made any changes on the server side and know I didn't make any on the phones.
-Brad