It looks to me like the only restrictions on password are that it can't contain the username and that it can't be one you've used during the "password history" period for that usergroup.
If you add this to the includes/config.php file:
Code:
define('ALLOW_SAME_USERNAME_PASSWORD', 1);
it should disable the check for password the same as username. If you edit the "Registered Users" usergroup, you can set the Password History to 0 to disable the history check.