According to Iomega's website, you have to have their software installed in order to open password protected disks. Have you installed their software yet?
From their website: (I've removed some irrelevant bits)
Read/Write Protecting Zip Disks
IomegaWare software includes a special read/write protect feature that allows you to:
Write protect a disk through software instead of with a mechanical write-protect switch.
Write protect a disk and assign a password so that no one can add, edit, or delete files without entering the password first.
Read/Write protect a disk so that it cannot be read from, or written to, unless the user enters the password you assign.
Setting Zip Disk Protection under Windows
Insert the disk you want to protect into your Zip drive.
Open My Computer and right click the Zip drive icon.
Select Protect from the drive shortcut menu.
Select the protection option you want to use. Click the Help button if you need information on any of the options.
NOTE: Although Zip disk protection options are set and removed using IomegaWare software, the actual protection mechanism is secured in the drive hardware. This means the disk protection cannot be by-passed using other software programs.
You can download the software by following
this link, selecting your product, then your operating system.