Why not use
mod_auth_mysql? You can then use MySQL-encrypted
passwords with no problem.
Note that there are some quirks in mod_auth_mysql, one of
which is that the Auth_MySQL_Empty_Passwords directive does
the opposite of what it's supposed to. Another quirk is that
usernames are compared case-insensitively.
I've hacked my copy of mod_auth_mysql so that it fixes these
problems (and actually adds case-insensitivity as a feature).
Let me know if you want it. These things may not affect you
of course, so you may not need my version.