There are two validations that needs to be changed. Server side validation and Spry Validation. To change the Server Side validation you will need to have Validation Toolkit installed and to change the spry validation:
1. open user_Registeration.php and look at line 406 and change it to:
var sprypassword1 = new Spry.Widget.ValidationPassword("sprypassword1", {validateOn:["blur"], minChars:4, minNumbers:1, minAlphaChars:1});
Keep in mind that you will have to make the same changes on the log in pages as well.