Encrypted? Like hidden or something?
Yep, pretty much. There's a whole bunch of stuff that happens behind-the-scenes to make passwords secure.
I hope that not only that they are encrypted but that a decent salt is applied to them.
That's a good question, so I actually decided to look that up.
Apparently IP.Board explains how they do their passwords here. The salt is five characters long, and each character could be 1 of 93 different ones. 93^5 = about 7 billion
I don't really think anyone would want to try to compromise the Nintendo Pipeline (except for she-who-shall-not-be-named), so I'm not too worried about it.