Hi,
Thanks for letting me know. I was able to reproduce the problem here and have it fixed in my svn sandbox.
A workaround until the next release is to always create new sites using the clear text setting then after the site has been saved change it to encrypted and save again.
The problem is in the setup routine for new sites. In the previous code it was not checking the password format of the site and was always creating the admin user password as "admin" and since this couln't be decrypted it would fail login. If you change it to encrypted after the user is created it will encrypt his password.
Best Regards,
Joe