This was taken from the release notes
220.127.116.11 (Bootloader 7.33) – March 9, 2015
1. Password Encryption Support
The password encryption support has been updated so that it can be enabled or disabled. If
password encryption is disabled, passwords will be stored in the existing obfuscated format
and they can be copied from one device to another. If password encryption is enabled,
passwords will be stored in an encrypted format using a device specific key and cannot be
copied onto another TransPort device. It is disabled by default which means existing units
will be unaffected.
There is a new CLI command “cmd 0 encpasswords <on|off>” and the
“Configuration > Security > System” web page has been updated. (SAROS-1398)
if i remember once you have enabled this it will only take effect on newly added passwords.
you might be able to also delete the old "pwds.da0" file and "config 0 save"
so you need to add the command to the config.da0 file
"cmd 0 encpasswords on"
remember if you are copying configuration between routers with this option on you can lock yourself out the router as the new router will be using diffrent salt for the encryptton