I've made some changes to the IMS Enterprise plugin that allows you to specify the password. This is, in fact, allowed in the IMS-E specification. See here:
http://www.imsglobal.org/enterprise/entv1p1/imsent_bindv1p1.html#1428026
I've made various other changes that improve logging and detection of existing accounts (so you don't try to recreate them). I've attached the patch and an explanation to MDL-15864
However, there's a nasty bug in the existing script. As Dan said, the new user's "auth" type defaults to whatever the default authentication method is at your site. There have been some changes to Moodle's authentication structure which means $CFG->auth returns a comma-separated list of auth plugins. You can only set one of these values in a user's record. I've reported this as a bug (MDL-15863).
Unfortunately, the bug has been assigned to "Nobody", so I'm not sure how it's going to be handled
Chris