Zen,
Yes, there are two ways to fix this, one is to force lower case and one is to allow case sensitivity. I heavily favour case sensitivity as it exponentially increases the search space for peoples passwords, and it also is two birds with one stone because anyone still trying to login who can't (I still think there are some users) should then be able to login.
Special chars work at the moment, it literally is case sensitive letters that cause the problem only.
Tom