This article from David Musgrave, is very much informative on the topic.
There were so many queries/doubts about the way the Passwords are encrypted in GP. But this article clears everything.
Original Link to this article: Why does Microsoft Dynamics GP encrypt passwords?
I am sure, your query may fall under any of the queries which are given in the very first section of the article.
Vaidy
Dynamics GP - Learn & Discuss 