that is a security feature in explorer to throw off key loggers. so if you enter a 4 character password it will fill the password box. While this is use to thwart hacker sand key logger programs IE stores the correct password so when you visit the site and enter your user name the correct password will come up in the box (althought it will like like it's filled in the entire password box the correct password is behind those dots you see. NOW when you change the password IE will not know the new password UNLESS you log in on the web page and it detect that the password is different from thats in the cache. it will ask if you want to replace the password.
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since Oct 2006