Does "/etc/samba/smbpasswd" exist?
The above path is on a Fedora Core 3 box, not sure if it would be different on your distro.
Anyway if not you may have missed a step in setting up.
I usually create this file by:
1. cat /etc/passwd | mksmbpasswd.sh > /etc/samba/smbpasswd
2. chmod 600 /etc/samba/smbpasswd
Then you would need to run:
Check your /etc/samba/smb.conf for the following lines:
encrypt password = yes
smb passwd file = /etc/samba/smbpasswd
Then after editing your /etc/samba/smbpasswd file you would need to stop and restart samba by running the following commands:
service smb stop
service smb start