If you have forgotten your password, you cannot recover the backup.
Dave,
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iPhone and iPod touch: About backups
"New with iPhone 3.1
Videos in the camera roll that are 2 GB or larger are not backed up.
In the iTunes Summary screen, select "Encrypt iPhone backup" if you want to encrypt the information stored on your computer when iTunes makes a backup. Encrypted backups are indicated by a padlock icon (as visible below in the Deleting a Backup section), and a password is required to restore the information to iPhone. You may want to write down the password for your backup and store it in a safe place. If you use a Mac, when you set a password you can select to store the password in the keychain.
Warning: If you encrypt an iPhone backup in iTunes and then forget your password, you will not be able to restore from backup and your data will be unrecoverable. If you forget the password you can continue to do backups and use the device, however you will not be able to restore the encrypted backup to any device without the password. You do not need to enter the password for your backup each time you back up or sync.
If you cannot remember the password and want to start again, you will have to do a full software restore and when prompted by iTunes to select the backup to restore from, choose "Set up as a new device"."
