Just adding that I'm having the same problem on Vista Ultimate 32-bit, and that:
a) I don't have any weird high-ASCII characters in my e-mail address or password,
b) I've uninstalled and reinstalled Silverlight and the Netflix plugin,
c) I've deleted my cookies, my history, my temp files, cache, form data, passwords, kitchen sink, all of the above, et al, ad infinitem,
d) I can successfully login and watch Netflix movies through the IE web browser but not WMC,
e) I signed up for Netflix recently on March 11, 2011 , and I could never login to it in WMC but it always works in the IE web browser,
f) I can login and use Netflix from within XBMC (alternative product to WMC) using the XBMCFlix plug-in,
g) I cannot login with either the Microsoft Netflix plug-in nor the vmcNetflix plug-in for WMC,
h) I've rebooted more times than any human should be subjected to, in fact I'm rebooting as I write this
It sounds like the login function for the Microsoft Netflix plug-in for WMC failed and broke on March 9, 2011 from what I'm reading. Like others, I'm awaiting Microsoft to make a patch and fix this.