[Samba] Automatic creation of home directories

[James Watkins]

Hi all, after searching the archives of this list and extensive general 
googling, I still haven't worked this problem out so I thought it was 
time to join the list.
I'm trying to make my samba server create home directories on-the-fly 
when new users login.  As I understand it, the way to do this is to use 
the mkhomedir module and enable "obey pam restrictions" in smb.conf. 
The trouble is that I'm using domain security to allow existing domain 
users to login which means I have to use "encrypt passwords = yes". 
Now, as I understand from the official samba howto:

http://us4.samba.org/samba/docs/man/Samba-HOWTO-Collection/pam.html

pam is automatically ignored when encrypted passwords are used.
So how do I resolve this conflict?
And on a related matter, if I use pam_winbind to authenticate users of a 
unix system against a windows domain controller does this mean that the 
passwords are send unencrypted?

Any suggestions would help to preserve my sanity.
Thanks in advance,
James.