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Contabo asked for the root password on a VPS to debug a routing issue, after having received MTR showing that the problem happened between the edge of their network and 2 hops before reaching the VPS.
To me that indicated an unwillingness to read the information I provided, which is why I canceled the VPS in question and plan not to do business with them ever again.
It's normal for virmach for example to ask for a password. They write something like "without a password, we can't help you that well..."
A good provider asks if he can shut down the server and boot from their CD/ISO to run some tests.
For checking the hardware they don't need your password and if you haven't rent a managed server they are not responsible for the installed software.