Why can't I paste into the password dialog when mounting an encrypted disk image?
No, you aren't doing anything wrong. Apple doesn't allow you to paste into certain secure dialog boxes. It's a feature, not a bug. (It makes a brute force hack of the dialog box more difficult.)

You can paste the password into the command line if you mount the secure image using hdiutil.

Open Terminal and type:

 hdiutil attach /path/to/imagefile -stdinpass


When prompted for the password, copy it from a text file or (preferably) a password vault and paste it into terminal.

If the path/to/imagefile is complex, you can type the command, a space, then drag the imagefile icon from the finder into the terminal window to automatically enter the path/filname.