If you want encrypt it, it means you need to decrypt it. So it means that the algorithm that encrypt and decrypt are available somewhere in your application or drupal files.
I guess if the user that has access to your database he has also access to your files, or at least I guess he can have access easily.
And in that case, encrypted datas are useless.
The most important its to hash the password with algorithms like SHA1 and use a salt or private key, thing that Drupal 7 is doing.
This is just my point of view, but if you want do it what you can use this module http://drupal.org/project/aes and with some user hooks, such as [hook_user_presave][1]
hook_user_presave() and [hook_user_load][2]
hook_user_load().
The trick in this case it's that your module should be the last one before saving save the data and be the first one that decrypt data.