I have had issues of "password incorrect" and mail not being sent, after doing the latest IOS 8 update to both my iPhone and iPad. I tired all the different suggestions I found (deleting and re-adding my AOL account, changing my password, etc) and nothing fixed it until now! While searching around for a solution, I happened upon a post from someone. I tried doing this to all three of my AOL email accounts (on both my iPhone and iPad) and now it works great! Here what that post said to do:
"1. Set up your AOL account(s) using the AOL option
2. Go into each AOL account(s) and under the "Outgoing Mail Server" section, press the SMTP entry
3. Set the "Primary Server" to "Off"
4. Press "Add Server" and provide the following information in the "Outgoing Mail Server" section
a. Host Name - type in: smtp.aol.com
b. User name - type in your user name WITHOUT the "@aol.com" - that was the problem/change!
c. Password - type in your password
d. Use SSL - On
e. Authentication - Password
f. Server Port - 587 (mine automatically set it to port 587)
After you enter in the above info, the Primary Server will still be set to OFF, but the new server you set will be set to ON, just doesn't show up in the Primary Server section. Be sure to do the above steps for each one of your AOL accounts (if you have multiples ones).
Apparently, in the main AOL Account Information section you need to use your user name and the "@aol.com", but you need to leave the "@aol.com" out of the SMTP. However, the Primary Server has that whole section grayed out so you need to ignore that one and create another one."
Good luck! Worked for me and now I am as happy as a Lamb!!