If you use a non-DES crypt as your default crypt, PHP will use it. But PostNuke is hardcoded to use 2 char salt (aka DES salt), so you will unable to login as any users. MD5 uses 12 char salt. PHP sets a constant for the salt length, and it should be used, not hardcoded.
The fix is trivial:
in user.php, Replace:
P.S. PhpNuke also suffers from this I believe.