When V2 changes the status of a device it sends a response XML to the application connected using the XML interface (Flex client in this case) that the device status has changed. That is why you see the Flex client display change when you change the device status through the HTML.
The rotating clock normally means a response has not yet been received. The fact that the actual X10 device does not respond (no click heard at device) tells me the X10 command did not get executed for some unknown reason at this point. There is an earlier post that has a SendX10 for an X10 device. Try issuing that through the SHN Utility, just like you did the SetPassword command. That is the same command the Flex client is using to control an X10 device (I think).
I have this nagging concern that something happened to the image/flash memory that not only corrupted the password but may have done other damage. You can reload the 02.03 image with the Discovery tool but it may require a Reset with the paper clip on the internal Reset button to completely clear the flash and that will also erase your configuration. Let’s see what the XML SendX10 through the Utility Control tab tells us first.