This seems to be a bug, I found references to other people with password problems, but none who described what I encountered.
Running Skype 1.2.018 on Mandriva 2005.
At the login prompt, try to enter a password with special characters in the middle/beginning. For example: a%E4d
Any of the special punctuation characters seem to prevent the skype password text entry box from accepting any more characters. In the example given, only the first 3 characters would be recognized. However, a password may be created with those special characters through the Skype webpage, and through the windows version of the client.