aaahh, raising my hand.

In the Modify Account dialog, it asks the password in one field, not
twice as I had previously thought. The "second password field" is
actually the "Local alias" field.

Typing in a made up alias to that field solved the problem for me. Works
correctly in 8.04 with current updates.

I am guessing that was the same problem that the OP had as well.

-- 
Password shows in gAIM text boxes, not screen name, on my end, screen name at 
recipient's end.
https://bugs.launchpad.net/bugs/109122
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