Solved it. NO reset required 🙂
Because likely the iphone sends a cookie. or known hash to apples servers.
ie: apple checks the password against the known stored valid password. then sends a cookie/(challange response)/other means to the servers. the servers reject iphone, gets confused.
order depending on device may be different! (mileage may very)
here's what i did>
1: go to settings> icloud enter the "new" password and allow it to update.
2: go to settings> mail contacts and calendar. put the icloud/me password in AGAIN.
3: go to settings> iTunes Store and App Store. >APPLE ID>> LOG OUT. or Disconnect (whichever is shown)
4: in the same area. LOG IN after loggin out. , it may ask to verify pay options. you STILL don't need to put a Credit card. just make sure "none" is selected.
5: iphone may NOW ask the same way as before to enter password with the pop up verify box. IT SHOULD work now.