ok first thanks for this hack, it totally rocks, and should be in vbulletin as a default feature, not hack...
i got it working now (i hope) but it took some screwing around... so i'm just putting what i did here so others can do the same:

1) do not edit the file sessions.php until AFTER you have run the update password script - you won't be able to log in to run the script if you do...

2) the file encrypt_all_passwords.php is messed up and will crash - search for "$DB_site_new" and replace with "$DB_site" before you run it...

3) the 2nd step of modifying admin/sessions.php is backwards - search for the 2nd part, and replace with the first!

4) the very last editing step says search for something and there is a '{' at the end... it shouldn't be there!!

5) ignore all line numbers - they refer to vbb 2.0.1!

6) do what Pogo says right above my post... he probably knows what he's talking about (but why didn't he complain about the encrypt_all_passwords.php file?)

now im gonna go see if my forum works still... i'll be back to whine and complain if it doesn't...