You are on the right track.

There is a problem with NT 4.0 with patch 3 or higher applied as with   
win95a or above.  Clear text passwords are not allowed, by default.

1) Look in the docs dir and apply (*_PlainPassword.reg) the appropriate   
registry modification.  In case you don't know how to do this, ftp the   
appropriate file for you MS product and double click on it, and the when   
finished reboot.
The samba server will use the same username and password you would use to   
login to the UNIX box.  Simple and quick.

2) If you have a domain server:
in your smb.conf
# by default this is user, you will need to change it.
security = server

# replace nt_server with the name of the nt server that
# that is capable of handling login auth.  Do not enter
# the NT domain here, it has to be a specific machine.
# backup domain controllers will do, master is prefered.
# Do not prepend the nt_servername with slashs.
password server = nt_servername
encrypt passwords = yes

In this senareo, the password set on the UNIX box is ignored.  The   
username you use will HAVE to be on both the UNIX box and the NT server.   
 So if the password for your login is CowsRUs and the NT password is   
SheepRUs, you will have to use SheepRUs.

3) You don't have a NT server and you feel that your security would be   
compromised by allowing plain-text password or the network.

security = user #default
#password server = #default
encrypt passwords = yes

Read docs/textdocs/ENCRYPTION.txt for more details.
Please some of the other docs too, there is lots of good stuff there.

jam
John A. Maier
Kemper Military School and College
Director of MIS
Voice: 660-882-5623
Fax: 660-882-3778
Email: johnam@kemper.org
Web: www.kemper.org