This is the answer to Mac OS X Encryption Problem
When he created the encrypted .dmg, he used the command line method, but specifically he used the method I showed where the passphrase is passed with "echo":
echo "your passphrase" | hdiutil create -encryption -stdinpass -srcfolder secrets foo.dmg
That actually embeds a newline into the passphrase. Wnen you type into the GUI dialog box, your "Enter" is stripped. The way to decrypt that is to provide the passphrase in the same way:
echo "your passphrase" | hdiutil attach -stdinpass foo.dmg
This was indeed his problem, and he was able to open his encrypted folder.
(You could use "echo -n" to avoid the problem)
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