Hi!
Just tested, see axew3 new user, and all is working fine.
So all is working perfect, if i login via wordpress, or phpBB.
While in effect, the form return the same error if i go to use the phpBB w3all widget widget.
This is not so useful you use this because:
1) users can login via wp login or phpBB login fine.
2) you have option in plugin admin to switch login/register links in wordpress, to redirect to phpBB.
But of course, you may would like by the way use the plugin login widget for some other reason, so after all these may not so useful words/hints, just let me see what's going on, i will return in reply soon
Just tested on my localhost and also here online (the widget is active on main page) but on both the result is ok.
May phpBB have some setting on or off, that interfere with this? I've try out any security setting on phpBB acp changing all what i've think could interfere but nothing, all work fine.
I see that after the login done via wp widget on your site, the phpBB answer like some (may session) expired, then if i follow inserting pass and username, the login go fine and i'm redirected correctly to wp.
Unfortunately i have still not reproduced the issue into my tests, so little lost on what could be this coming out on your phpBB and why he return the message...