The easiest way would not be not to store the password but a hash of the password. That way even if your packets are sniffed the person only sees garbage. When the user creates a password or logs in you can hash the password prior to sending it over the the network. The on the server side you can compare the send hash to the hash you have stored for the user in your database. Just Google hashing with salt to see examples.
iamthwee commented: Agrees +15
jon.kiparsky commented: Yep. Good answer. +2