The encrypted password is created from a hash of the machine key (which is in web.config so could be a red herring if this is the same web server?) + actual pwd + randomly generated password salt.
Try running a sql trace to capture the issued commands and try running those in QA. This would show up a hash mismatch or simple auth fail.
Maybe you should force the machine key, look for machine.config and copy it from there into your local web.config.
My past pain-history says if ur still scratching your head - go find a decent decompiler (ILSpy) and attach your debugger to the dll and step through as you would if it were your own code.