Here's an info from Serv-U Knowledge Base:
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Manually Entering Encrypted Passwords into the ServUDaemon.ini File
To generate an encrypted password, first two random characters (the 'salt' - in the range a..z, A..Z) are added to the beginning of the clear-text password. This is then hashed using MD5 and the resulting hash is hex-encoded. The result of this is written as plain-text salt first, followed by the hex-encoded hash.
So, for a user account in the .ini file this would look like:
Password=cb644FB1F31184F8D3D169B54B3D46AB1A
The salt is the string "cb", the MD5 hash is "644FB1F31184F8D3D169B54B3D46AB1A".
Serv-U does pretty much the same thing when verifying a password. It picks the salt-to-use from the user's account information (ie. "cb" in this case), prepends it the password the user entered, MD5 hashes it, and compares the result with the stored hash. If both are the same it is assumed the password was correct.
If you are having problems updating the ini file without restarting Serv-U please see article number 1176.

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