Do, do, do use SSL. If you actually want this communication to be secure, then any other option is just silly. Well, check that: PGP would also make sense... since you only care that the passwd be encrypted (which is a kind of odd requirement), then you can just PGP the passwd, and send the encrypted block over the connection.

The point is: this kind of security is hard. Smart people have already put a lot of work into coming up with good, strong, portable solutions (like SSL and PGP), and you should use one of them. If you try to reinvent the wheel here, you will spend far more time and end up with something which is not secure.