Post Passwords Fail

When creating an entry with a Post Password, the entry
is created and successfully publishes the form
requiring the password to be entered when going to any
of the various pages (front page, any archive page with
it on there). However, when attempting to enter the
password, clicking submit just returns the form again,
not the unlocked article.

This is occuring on a vanilla WP1.2 install with no
plugins activated and nothing in wp-hacks.php.
mod_rewrite rules have the permalinks using the
following paths...

/blogs/archives/year/month/day/id/page/

I do not use the title of the blog as part of the URL.

Have tested with multiple length passwords, this occurs
whether the password is 1 char, 4 chars, 8 chars, 10,
16 or any other size. Have tested with alpha passwords,
numeric passwords, alpha+numeric... No special
characters used in the passwords.

Have checked the coookie for the password of the post
exists and it does. It has a expiry time of 30 days
from when its set as per the wp-pass.php script.

Where in the_content() does the password cookie get
checked and is it checking for a clear password or the
hash? Is the password stored in the database in clear
text or as MD5 using the databases password() function?

This is something I truly need to resolve some how. Any
pointers to where in the source to start looking, or
any solutions or attempts at solutions would be greatly
appreciated.