Andy, I can't see:
mechanisms: plain login
under 'auth default' in your configuration. Could you check if that
exists?
** Changed in: dovecot (Ubuntu)
Status: In Progress => Incomplete
** Changed in: dovecot (Ubuntu)
Importance: Undecided => Medium
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Dovecot Plain auth broken in 1.1.1, fixed in 1.2.1
https://bugs.launchpad.net/bugs/398733
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