Unable to login with changed password - PANIC

I changed the password of the main user, which is the only user account other than guest on my netrunner system and used admin privileges afterward until shutting down the system. The change in the password was 1 letter from lower case to upper case. However, after switching on the system, it does not go past the login screen (the password is correct, because a popup comes up if I enter a wrong password). There is a pause, a dark screen flashes and then back to the login screen. In my desperation, I have tried entering the password multiple times.
What do I do? The home folder is encrypted, so I’m worried as to how to access the data, even if I reinstall / use a linux pen drive?
Please help with detailed instructions.
This is the first time I’ve had to post for support with linux. I was able to figure my way out for more than 3 years by searching around online, although I’ve used different distros but find cli a bit intimidating.
I’d appreciate your help in getting me out of what seems like a serious mess.[/size][/font]

I think that the encryption password was not changed and it tries to decrypt your home folder with the new password what does not work correctly.
So I would recommend going to a tty or starting a failsafe terminal session and changing the password of the user with the passwd command back to the original one.
That should allow you to login again.
After that we can make sure how to properly change the password of the encfs home folder aswell.

Thanks a lot, leszek. I would not have understood how to go about doing what you were asking me to do a few hours ago, but by the time you replied I looked around and although I wasn’t able to resolve the issue I could atleast make sense of what you asked me to do.
And your prescription worked.
Now, would you be kind enough to explain to me how to keep the data separate from the OS files (preferably encrypted), so if I were to add / change to another distro I would still have access to my data and keep myself from another panic attack.
(My current installation is a netrunner 13.06 default installation.)

For this I would rather recommend the LUKS encryption instead of the encfs Home encryption used currently. At least in my personal experiece LUKS worked better. But you need to know that this is just a matter of personal preference.
As for switching distributions I always recommend having a seperate /home partition no matter if encrypted or not.
Here is a guide which explains how to setup LUKS on a new partition and how to copy the old /home data to it.

https://help.ubuntu.com/community/EncryptedFilesystemHowto3#Encrypted_Home