Not able to login as / or drop user and related dbs

Hello -

Am new to PostgreSQL, from Oracle background.
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Running / Installed PostgreSQL 9.1 under Ubuntu 13.04.
DBMS starts / stops ok.

I had created a user like so:
sudo -u postgres createuser testuser
Shall the new role be a superuser? (y/n) n
Shall the new role be allowed to create databases? (y/n) y
Shall the new role be allowed to create more new roles? (y/n) n

Worked fine.
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Then I created 2 databases under testuser and db created as well.
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Then I log in as superuser postgres:
sudo -u postgres psql
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Logs in fine and at the psql prompt I try to update the password of testuser:
alter user testuser with password 'postgresql';

I get: role "testuser" does not exist
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I queried with a: select * from pg_roles; as well from pg_user;
I see testuser in both queries.
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I also tried from cmd line:
sudo -u postgres psql -c "ALTER USER testuser PASSWORD 'postgres';"
same message: testuser does not exist.
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Essentially I am trying to drop the 2 databases I created.
My command: psql -U testuser -W - does not work as it fails authentication.
Even when I try: psql -U testuser
I think because I did not set a password initially.
But then I cannot set a password with 'alter user'.
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Like I said I can see the user when I query pg_user and pg_role.
But do not understand why I cannot alter the user.

And when I log in from cmd as: sudo -u postgres psql
The how do I change to user testuser so I can at least drop my databases with the dropdb command - as that command does not run from postgres superuser.
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Also coming from an Oracle background, user and role are different concepts.
Here both seem to be the same.

Is there a better way to create user than the one I did (from an example).

If someone could pls help with my questions and help with my confusions will be much appreciated.

Thank you.