OK, it seems that the Joomla authentication fields are populated using some kind of filter that removes apostrophes (and, presumably other characters that I can't be bothered to test...because there's no point)
Anyway, now that I know that there's a filter in place, I don't trust the username field to convey the username as entered and I go directly to the raw input and things work as expected.
I created a user with username obrien, password obrien, and email address o'This email address is being protected from spambots. You need JavaScript enabled to view it. and was able to log in.
I need to do some more testing before I release a new version, so give me a bit and you'll see an update available with in the Joomla updater within the next day or so.