Since 1.2 version you can pass the encrypted password stored into mysql
Joomla! 2.5 & Joomla! 3.0
Fixed wrong name parameter
Added more controls
Added auth type param
Added url redirection after login param
I found this, installed it, changed 1 line of code in my form and BINGO!! The user was automaticlly logged in.
Also works for sending links to you users, just append the link with &user=theusername&passw=thepassword. You can also use the encrypted version of the password from jos_users.
Special thanks to the developer for being awesome!!