I'm getting the same error but cgminer won't automatically switch to my backup pool. I assume that's a cgminer issue, not a pool issue, right?
It's not a cgminer issue; not really. The pool isn't "down." Down means you can't connect to it. The pool is up. It is rejecting all proofs of work, but it is "up."
Cgminer has a setting you can enable to automatically disable any pool that rejects too many shares (check the README for details). Note that it won't automatically re-enable the pool after it does this. You'll have to do that manually to test to see if it's working again.