You don't, it's a Red Herring, I had the exact same problem yesterday.
- First delete the user record from your database
- On the register page make sure that Insert Record server behaviour saves the password field as encrypted
- register a new account
- have a look in the SQL tables and you should see a big long encrypted string in the password field
- On the login page make sure that the password field is set to use encryption
- Then try logging in with the new account
I must say, I had a lot of trouble with this myself, but it's all working as described now. You definately don't have to do anything special with the field definition of the password field in the table.