To some extent, you're right. Bruteforcing the password becomes a case of first bruteforcing the kernel by searching the much smaller password space of lowercase letters, then once that's matched using that kernel to generate candidates by altering case, adding digits, etc. Obviously a smart search will immediately try uppercasing the first letter, and adding a 1 to the end, and in a lot of cases that's going to be right. So yes, it does reduce the strength of your encryption against bruteforce password search, by several orders of magnitude.

This is where advances in hashing approaches might negate that problem for you, though - and you'd need a proper cryptographer to figure this out. If it was a plain MD5 or SHA of the normalized password, you're absolutely vulnerable to an attacker using a rainbow table of lowercase alphabet words figuring out the 'root' of the actual password; then they could use that to construct password candidates to hash and compare to the full password. But just adding a big block of salt to the normalized password though would take it out of the pure-lowercase searchspace and force you back to bruteforce searching of the (admittedly small) password space. However, multiround salted hashing strategies like bcrypt rule out rainbow tables and allow you to tune how expensive bruteforcing is, and even though the password space of the password kernel is limited, you may be able to turn bcrypt up high enough to make it unfeasible to bruteforce.... maybe?