>>>What is your SQL Server version exactly (select @@Version)?
>>>
>>>Also, did you try to script the action and do this from a script?
>>
>>version = 11.0.21000.60 (x64)
>>
>>I created the user turning off the pw validation. After that was good, I then checked the validation again. it was ok then, but while I found a work-around, this still seems like a huge bug that SQL would crash windows at all ever. ... just my $.02
>>
>>thank you for your response Naomi
>
>Do you have SP1 installed for SQL Server 2012?
>
>If the problem is reproducible, then you need to create a MS Connect item for that bug.

Thought someone might want to know, I finally found a solution to this problem (error code 417):

http://social.msdn.microsoft.com/Forums/sqlserver/en-US/6171f077-f7bc-4c08-83c8-77b03b774f8d/any-password-changeentry-causes-lsassexe-error-crashing-server?forum=sqlsecurity
and
http://www.stigviewer.com/check/V-1131

If your error code is 255 then there is a hotfix:

http://support.microsoft.com/kb/2732595/en-US

Just FYI