First off, verify the users password by logging in via another method (afp, smb, ssh...)
If that is a go, try replacing some stupid file that seems to get corrupt.
serveradmin stop ftp cp /Library/FTPServer/Configuration/ftpaccess to a backup file then copy the ftpaccess.default to the ftpaccess file. serveradmin start ftp
It looks like they "fixed" it in 10.7 by removing the gui config tool, and changed out the ftp server used.
They now need this:
Hint if that link breaks: - start it from a shell.