When CB generates a password on the creation of a new account, then the notification email to the user from CB contains the correct (i.e. working) password in the [PASSWORD] field of the email. However, Joomla also sends a notification email to the user, and this contains the wrong (i.e. not working) password.
Example on creation of one account:
Generated by CB, works:
Password*: HTpzMDkXDaE9
Generated by Joomla, does not work:
Password: TRWyldT0
CB2.07, J3.40
This simplest solution for now I guess would be to disable the email that Joomla sends (HOW?), but it does suggest to me that there is a problem in the handling of passwords between Joomla and CB.