Also having this same, very annoying problem! A PAID alternative like Sparrow or Postbox etc. is NOT attractive to me when there are plently of FREE ones - like Thunderbird.
The Yahoo! IMAP server “imap.mail.yahoo.com” rejected the password for user “xxxxxxxxxx@yahoo.com”
Enter your password again or cancel.
It happens 20 times a day! If I enter the password - it connects and retrieves the email - and the settings and password saved in Mail are correct and verified. It works - sometimes.
I have repeatedly also tried the "remember this password in my keychain" tickbox.
The exact same IMAP requests/credentials from my iPad and cell phone work perfectly - without ever getting rejected. This tends to indicate it is NOT YAHOO'S fault.
I have run Keychain First Aid - no help there. It is a big problem for one Yahoo email account I have, and an occasional one on other email accounts as well.
If this keeps up I'm going to have to forget Apple Mail and go to Thunderbird or something else that's FREE!!!.