First, it is a v3 right? If not of course it won't work. Second, is it debugged? I've found if it's debugged, you have to un-debug it to use the passwords. *tamatippy*
Make sure the username you entered when you went to TamaTown is the same as the one you entered when you first started your Tamagotchi. You can check what username you entered on your Tama by going through its stats (first icon, I forget exactly what it's called). Your username is the last thing listed.
[SIZE=8pt]Is your username on Tamatown the same one as on your v3? If not, you'll need to enter the same username on Tamatown as the one on your v3 Tamagotchi. If that doesen't work, you're probably just typing in the passwords incorrectly.[/SIZE]