libpq / crypt / md5 question

I have a mail server using a PostgreSQL database for virtual lookups
and I'm using Courier IMAP with the pgsql hooks for mailbox access..
First, this setup is working beautifully, that's not the problem..

It seems that courier can only connect to the PG database when the auth
type is set to crypt in the pg_hba.conf file. This is somewhat strange
but brings me to my question..

On the client side, am I responsible for making the password an MD5
hash, or does libpq take care of that on it's own? In courier's pgsql
code I see :

pgconn = PQsetdbLogin(server, server_port, server_opt, NULL ,
database,userid,password);

..... Which is pretty straight-forward, but that password is always
going to be passed to pqsetdblogin() as plain text.. So where does the
MD5'ing or DES crypt'ing come into the connection? I've honestly never
paid any attention to the auth type until now as I've *always* used
just a local socket for access to PG, or the trust auth type (none of
my servers were public and accessible by more than a controlled group
of users until now)..

If I missed any of this in the documentation, please feel free to smack
me with a RTFM stick. :-)

Thanks guys!

-Mitch

There are three kinds of people in this world. Those that can count and
those that can't.