TL;DR
Nothing is lost except your labels. The password only encrypts the wallet file on your computer. Rebuild the wallet from your descriptor, set a new password and register the Ledger again.
What the password protects
The Sparrow wallet file on your computer: your descriptor, your transaction labels and, for a Ledger, its multisig registration. It doesn’t protect your keys, which never leave the hardware wallets, and it isn’t needed to spend if you rebuild the file.
Rebuild in five minutes
- In Sparrow, choose File → Import Wallet.
- Load the descriptor from your USB backup or scan the QR code on your printout.
- Give the wallet a name and a new password. Save the password in your password manager.
- Connect the Ledger and register the multisig again when Sparrow asks.
- Check the first receive address against one you used before.
You can leave the old, locked wallet file where it is, or delete it.
What you lose
Labels you added to transactions and addresses. If they matter to you, export them now and then (File → Export Wallet → Labels) and keep that file with your notes.
No descriptor either?
See lost your multisig descriptor. With all three seeds you can still rebuild it.