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Unfortunately you will have to perform a reset of the device . This is the only way to get access to the device again since its not taking your new password, but its not as bad as it sounds.
As long as you have a Google account synced to your device, your contacts, calendar, etc. will be re-synced to the device after you run the initial setup again as long as you sign in with the same Google/Gmail account (as long as they were synced previously). Any apps you have paid for, you can get back after you reset the device by opening the Play Store, pressing Menu on the phone and choosing "My Apps".
As far as any data that is stored on the SD Card(images, music, etc.), it will not be erased. Only the phones internal memory is formatted.
To complete a Factory Reset follow these directions: