“User is authenticated but not connected” after changing my Exchange password

The message “User is authenticated but not connected” is due to a bug in the Exchange server's IMAP implementation. If the client presents a valid user name but an invalid password, the server accepts the login, but subsequent commands fail with the aforementioned error message. Source: SaneBox blog.

So I need to change the password stored by Thunderbird. There's no actual way to change the password except at a password prompt (which Thunderbird doesn't show since the server never tells it that the password is invalid). I first need to make Thunderbird forget my saved password: use the “Preferences” → “Preferences” menu, go to the “Security” → “Passwords” tab, click the “Saved Passwords...” button and remove the entry(s) that have the old password.

I don't know why I still had the old password there. It's possible that Thunderbird had worked after the password change only because existing connections had remained open.

I then restarted Thunderbird (I couldn't find an easier way to make it re-attempt to connect to the Exchange server).

Thunderbird deleted all my local archives for this account. I think it decided that the folders had been deleted on the server when it received an unknown error from the server, instead of treating the error as an error. This is a bug in Thunderbird, I haven't tracked it down. When I subsequently changed my password again, I closed Thunderbird first, and it didn't delete any archives.

I have this problem from time to time. Most recently I tried changing the "maximum number of connections to cache" to 1 and it solved the problem (possibly just a coincidence but it was correlated enough to post here)..

You can do this under Edit->Account Settings->Server Settings->Advanced...