M1 iMac (11.6) password only works sometimes

In my 30 years of using Macs, this is a new one on me.

I can log in to the new M1 iMac (11.6) just fine by typing in my password. But when I try to do something that calls for me to type my password into a dialog box, my password will not be accepted. It will only be accepted if I type it in TextEdit or some other app and then copy and paste it into the dialog box. This also happens on my wife's user account.

What is going on here? Any ideas? Is it the keyboard, maybe?

Thanks