On the 1.0 version of the iPhone software, there appears to be a bug concerning VPN passwords and the onscreen keyboard. If you save one, it isn't always correctly saved. Upon connecting to the VPN, you'll be prompted to put in a password. Unfortunately, you are presented with only a numeric "dialpad" keyboard with no apparent way to enter text characters.
I've found that I can just put in a number and submit it, and then I'll get another password dialog box that gives access to the full alphanumeric keyboard. I'm guessing this will be fixed shortly, but I hope this helps a few people in the meantime.
Mac OS X Hints
http://hints.macworld.com/article.php?story=20070705144510885