Which version of Joomla?
If Joomla 1.5, then this is what happens: VirtueMart does not control this error message, Joomla does. Joomla checks whether the login information is correct. If not, then Joomla returns the error message (not VirtueMart). Joomla returns error messages to a specific area of the template:
<jdoc:include type="message" />
If your template does not support that functionality, then the message won't appear.
Greg