BuddyPress.org

This doesn’t address the underlying issue but a temporary fix (2 months for me) is to

change the welcome email so that the wpmu generated password isn’t included. I’m hoping that upgrading to bp 1.2 and wpmu 2.9 will fix a few little bugs that effect my install.

Go to:

Site Admin > Options> then edit the Welcome Email

There is also a ticket for this in the trac:

https://trac.buddypress.org/ticket/1208

Previous topic:

https://buddypress.org/forums/topic/user-chosen-password-different-to-welcome-email