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.