Please provide some more information (log file, server version, what have you done to encrypt the password, ...). Without any information we can only guess ...
Here some general hints for AS 7.x:
I followed this tutorial http://middlewaremagic.com/jboss/?p=1026 to setup the encyption and it went smoothly. Did you the same as described there?
A starting '-' in the encrypted password is part of the password.