I am pulling my hair out, I am having a very similar issue and cannot find a solution. I believe the issue started when I got my iPad, but I'm not sure.
I can update and purchase apps from the iPad with no problem, but I try from the iPhone, my id or password is incorrect. I have confirmed the address/login information in settings, as well as in the store. I have synced my phone in iTunes, and I confirmed the username and password there (I am able to successfully log in to the iPad and iTunes with the same id/password).
I have restarted the phone. Nothing is working. The ONLY thing I think it MIGHT be is that my email is zooreturns@xxxxx, but when I attempt to purchase or update from the app store, it's showing the user as just "zooreturns". When I go to the store to see which ID is logged in, it does show the zooreturns@. I have logged out and logged back in, but it's still just showing "zooreturns" when I try to update.
Does anyone have any other suggestions? This is just driving me bonkers!!