I spent a lot of time ensuring ActiveSync was working properly for a client on Exchange 2010--they have a lot of iPhones and I wanted to be sure everything top-notch.
When attempting to activate a Motorola Droid 2 with the Exchange server, I kept receiving the error "Username or password incorrect" despite the fact that the username & password were both in fact correct. I was also unable to enter a server name no matter what.
I managed to solve the issue by entering a completely incorrect email address (email@example.com) before finally being prompted for the server. After entering the FQDN of the mail server, I was able to successfully authenticate the account.