I tried to make this all clear in step #9 in the installation...
Quote:
Also, if you're using the authentication script in conjunction with the automatic login feature (as set in chat_global.php) we strongly recommend setting the Exit URL in your SigmaChat control panel to the URL of your forum system. When the automatic login is used in combination with the authentication script, you can only login to your chat room from your vBulletin system during the automatic login as password authentication is special for this type of set up. You can find the Exit URL setting in the "Web Sites" -> "Settings" section of your SigmaChat control panel.
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Basically, when the auto-login is used with remote auth, the password is sent through the applet md5 encoded, and the authenticator does a simple byte for byte comparison with the VB database..