Please, search before post new answer. This is a common question: https://accounts.openerp.com/forum/Help-1/question/6545

Just checked with my 7.0 installation and the passwords are not encrypted. However, I wonder what security problem you are worried about? Encrypted passwords in the database only mean that somebody who connects directly to your db, or who gets access to a database dump can't see the user passwords (which is of course a good thing in itself). Access to the database and its dumps should be restricted as there is far more than just user passwords that is potentially sensitive information in an ERP. Password encryption does not increase the security of the application in any way.

If you are worried about the general security of OpenERP that are other more important things to be concerned about, such only allowing connections to your OpenERP server using SSL.