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Valid for Sitecore 5.3
  Illegal characters in password

When using pipe (|) or caret (^) character in the backend user password, Sitecore client login functionality can be temporary broken. Application restart is required to restore login functionality.

You may also want to install the following patch in order to guarantee that this issue will not occurr in the production environment.

1. Copy this assembly to the "\bin" folder of your solution.
2. Add new processor to "login" pipeline in the web.config file:

      <login argsType="Sitecore.Pipelines.Login.LoginArgs">
         <processor mode="on" type="Sitecore.Pipelines.Login.LoginCookie, Sitecore.Kernel" />
         <processor mode="on" type="Sitecore.LoginFilter.DenyLogin, Sitecore.LoginFilter" />
         <processor mode="on" type="Sitecore.Pipelines.Login.Login, Sitecore.Kernel" />
        ...
      </login>