If you click cancel, it will still show a error message: Unable to Load *.qst - Invalid Password (where * is the filename). If you enter the right password and click cancel, your quest is loaded.
The cancel button should roll back the loading and return to the quest you're working. (Is the roll back not implemented?)
It's always done this. It's the same effect anyway, so why bother fixing it. :shrug:
Could I suggest the roll back function in Beta Suggestions sub-forum to make Cancel in password entry true?
Or, the roll back function is too impossible to implement. (If its too impossible, could the developers remove the cancel and the X button leaving out the OK button.)
Existing quest data is thoroughly overwritten during quest load, so if you didn't save the old quest, rolling back would be very difficult to implement.
Not a bug per se; remanding to Beta Suggestions for further discussion.