I am currently tracking a bug with Squarespace (and Expression Engine, according to comments) where, for a newly configured blog, MarsEdit will receive an "Invalid Website" or "Internal Server Error" upon trying to connect. I have traced the problem to a change in MarsEdit's behavior when a password has not yet been set on the blog.
To work around the bug in MarsEdit 3.5, select the blog in the main window list, and manually set the username and password on the blog before refreshing again.
1. Select the blog in the main window.
2. Select Blog -> Enter Password… from the menu bar.
3. Enter both username and password in the panel.
4. Click OK.
5. Click the Refresh button.
I aim to fix this in 3.5.1. I'm sorry about the inconvenience in the meantime.