In order to apply the sha1 formatting on the value you will need to use a DataAssist update. The DW updates are limited in how they set the values, they only allow you to select form elements. The DataAssist update server behavior is much more robust and allows you to use any dynamic values.
If you can only use the DW update then you might still be able to format the value when it is added to the db. If you post back with the page in question I will take a look and let you know where and how to add to the code to the page to encrypt the password before it is stored in the db.