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It appears that the user name and password that OmniFocus for iPhone uses can get stuck on a particular value. If you enter a typo or if your login information for your sync server changes, OmniFocus gets stuck using the bad information. I suspect that's what's happening here.

If I remember correctly, 1.1 prompts you for another user name and password, but for the time being, we'll work around the problem by doing the following:
In OmniFocus' settings screen, scroll down to the sync settings.
Tap "advanced", then enter "" into the "Location" field.
Tap 'done', then tap the sync button.

Your phone will attempt to contact our server for a sync; we'll prompt the phone to ask you for a new login and password.

Type in random gibberish for the user name and password - the point here is that we want our server to send you a 'bad password' response. (Do not type in the user name and password of the *account you're actually trying to sync with; we could read that data.)

In any case, when the password sheet comes down a second time, tap 'cancel'.
Switch the sync settings back to their normal values and start a sync.

You will be asked for the user name and password; you can now enter the new info you want OmniFocus to use.

Does that get you back up and syncing?