Re: can a user enter his own password at registration?
It can, but the amount of spam accounts will increase dramatically. The reason for sending the account password via e-mail is to prevent spammers from simply entering a known username and password and creating 1000’s of spam blog posts on wordpress mu.
I have a similar situation, where I have a current site with 15k users, username and passwords. What I used is this plugin. It works well on wordpress and buddypress.
When a user logins, it checks my “other” database for the username, and validates the password against it. This means they don’t need to do the e-maiil thing, as their e-mail was already validated on the old site. It then creates the user in wordpress and the user doesn’t notice anything.
How you could do this for your friends, just make a table of all the friends, and set the same password for everyone initially, and ask them to change it. I only suggest this for very small beta sites with friends you trust, like less then 10 people.