I am also having this same error.
It asks for my email (which is already filled in), so press "Ok"
It asks for my password (which is already filled in), so I press "Ok"
It asks me if I want to save my password so I don't have to enter it every time I go on xbox live, so I check off the box and press "Next"
Then the error pops up, saying my email or password is incorrect. but here's the weird part. If I press B, or the guide button to back out, it sign me out of my entire profile... But if I press "Ok", it brings me back to the beginning where it wants my email and then I can press B to close the security section and I'm on xbox live like nothing even happened
I have no idea what's causing this, but its annoying. When my girlfriend signs in her account to play with me, she has to go through the same process