source: branches/samba-3.5.x/docs-xml/smbdotconf/security/updateencrypted.xml

<samba:parameter name="update encrypted"
                 context="G"
                                 type="boolean"
                 basic="1" advanced="1" developer="1"
                 xmlns:samba="http://www.samba.org/samba/DTD/samba-doc">
<description>

    <para>
        This boolean parameter allows a user logging on with a plaintext password to have their encrypted (hashed)
        password in the smbpasswd file to be updated automatically as they log on. This option allows a site to
        migrate from plaintext password authentication (users authenticate with plaintext password over the
        wire, and are checked against a UNIX account database) to encrypted password authentication (the SMB
        challenge/response authentication mechanism) without forcing all users to re-enter their passwords via
        smbpasswd at the time the change is made. This is a convenience option to allow the change over to encrypted
        passwords to be made over a longer period.  Once all users have encrypted representations of their passwords
        in the smbpasswd file this parameter should be set to <constant>no</constant>.
        </para>

    <para>
        In order for this parameter to be operative the <smbconfoption name="encrypt passwords"/> parameter must 
    be set to <constant>no</constant>. The default value of <smbconfoption name="encrypt
        passwords">Yes</smbconfoption>. Note: This must be set to <constant>no</constant> for this <smbconfoption
        name="update encrypted"/> to work.
        </para>

    <para>
        Note that even when this parameter is set, a user authenticating to <command moreinfo="none">smbd</command>
        must still enter a valid password in order to connect correctly, and to update their hashed (smbpasswd)
        passwords.
        </para>
</description>

<value type="default">no</value>
</samba:parameter>