As WinSCP automatically tries to re-establish the connection to a server in case the connection has been disconnected by the server it can happen that the password entering dialog stays for some minutes before I recognize that WinSCP asks for a password.
In such a case it seems like the connection to the server has already been closed by the server again (as no password has been received). But the password entering dialog does not recognize that the connection has already been terminated by the server.
If you now enter the password but WinSCP will fail as the connection is already gone. Therefore this all ends in an error message no matter what you do.