I have this problem also....
Bear with me.
I originally was at the user level, later I moved to reseller level. Everything was working fine until a couple weeks after I moved my original user level domain over to it's own IP so that I can use SSL with it. One day ALL my ftp accounts went bye bye. Even my root account. Seth helped and I got access to my root account, but never got my other accounts back. BUT... on the main login page sidebar at the user level it showed that all my FTP accounts were still there, in fact it still shows that I have 16 accounts when I actually only have 9. This is the correct number if you took my original account number and added the ones that I recreated to it. But going to the FTP account screen showed nothing except the root account. I had to recreate all my FTP accounts. After recreating them, some worked and some are still not able to connect. I keep getting a bad password error on those.
NOW... every FTP account I try and create kicks back "bad password". After reading this post I decided to test it on my other domains. I have three, two that are on a shared IP, and my original domain that has it's own IP. When making an FTP account on the shared domains it looks like
this.
When I create an FTP on my domain that has it's own IP it looks like
this.
Please take notice of the area that lists the "FTP Username:"
I have tried several times to create an FTP account. Gone back in and changed the password, deleted and created the same account and even used both "user" and "custom" choices.
I am not sure about the seemingly random accounts that I recreated before that are not working because ALL the FTP accounts on my domain with it's own IP doesn't have @mysite.com after the actual name.
Maybe Seth can add more info to this post as he is my hosting companies support guru, and I am just a lowly user.