Repeated password prompts with a Microsoft Exchange account

I use an 32GB iPod touch running the latest iPhone software as a PDA and music player. To help me keep organised, I use my company Wi-Fi network to connect to our Microsoft Exchange server. I think we are running the 2003 version.
From time to time, the iPod prompts me for my Exchange password. If I enter it, it reports a login failure. When our sysadmin - who is very good - looks at the Exchange Server log files, it shows a successful login attempt. He mentioned that he is also seeing occasional funny behaviour with iPhones, but that Windows Mobile devices seem to have no trouble.
Is this an iPhone software glitch, please? If so, is it likely that it will be fixed in the near future?

Right...thanks for that...but, from all that I understand, OWA offers only email OTA...not calendar nor contacts nor anything else. As I said earlier, invites that arrive in email will go onto the BB calendar since they come in as an email. But, if an appointment is, for instance, added directly to the Outlook calendar, then it will not appear on the BB calendar.
All of the behavior you describe does not match with the behavior as I understand it for a BIS/OWA connection. All of the behavior you describe does match a BES connected device (with some problems in erroneously auto-deleting calendar items).
Hence, all of the confusion...sorry I can't be more help.
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