You can use password encryption with Samba and windows.
However, if I remember correctly, you will have to patch windows first. You can do this via windowsupdate.
Also, you may need to specify the password program and a password chat in the [global] share
This is what I have on my RedHat machine.
Code:
security = user
passwd program = /usr/bin/passwd %u
passwd chat = *New*password* %n\n *Retype*new*password* %n\n *passwd:*all*authentication*tokens*updated*successfully*
In your [homes] share, add the following