After installation, only the files/ folder needs to have 777 permissions.
to encrypt the passwords, you would need to modify the registration page to store the password in an encrypted format, and modify the login page to convert the entered password to the encrypted format for comparison.
We do not offer support of this type of modification. If you would like assistance with making this modification, I would suggest a premiere ticket where we could work with you one on one through a screen sharing session.