I think that what is happening is that you have the smb enabled via the web and thus it is rewriting the smb.conf based on the web configured options and the unwanted default for encrypt passwords.
1 - disable the samba on the web gui (USB application->samba->disabled)
2 - login to wl and create the desired smb.conf under /usr/local/etc/smb.conf (you may just cp /etc/smb.conf /usr/local/etc/smb.conf and fix the "encrypt passwords = yes"
3 - edit the file /usr/local/sbin/post-boot and add the two smbd/nmbd lines, it may look like:
Code:
#!/bin/sh
/usr/sbin/smbd -D -s /usr/local/etc/smb.conf
/usr/sbin/nmbd -D -s /usr/local/etc/smb.conf
4 - flashfs save && flashfs commit && flashfs enable
5 - reboot the router
Note that if you want to customize the shares you can't use the web anymore, just go and edit the /usr/local/etc/smb.conf as needed