I don't use this feature, so I can't tell you from personal experience whether there are certain circumstances in which it just fails.

But I can say that you can remove an old password that you don't want Firefox to keep using by going here:

orange Firefox button or Tools menu > Options > Security > "Saved Passwords" button

If that doesn't work, your passwords file may have become corrupted. Fingers crossed that is not the case.

Thanks jscher2000. That worked, BUT, it's still very annoying that Firefox used to deal with such changes smoothly and automatically. Now it's a manual correction that I must make.

Thanks again for your help.

I can only guess that Firefox 5.0 will be even worse (I am avoiding it because it will cancel my add-ons just like 4.0 did). A new version every month means my add-ons will never work if I keep up. After years of satisfaction with FF I am now considering other browsers.

I really don't know whether Firefox has changed, or it's something about Yahoo in particular, or your password file is showing signs of corruption. So I wouldn't take it as a sign that you will be unhappy with Firefox 5.

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Regarding add-ons, though, due to the new way Firefox versions are numbered, I predict this will be an area of continuing discontent.

If you are inclined to experiment, you can force Firefox to ignore add-on version restrictions by (what else) installing an add-on. Then you can test whether the add-ons important to you actually work in Firefox 4, 5, 6, 7...

Add-on Compatibility Reporter :: Add-ons for Firefox

After you install this add-on and restart Firefox, there will still be a message that "--- is incompatible with Firefox x.0" but the add-on will be enabled and a Disable button will appear for that entry.