Sony's Patrick Seybold has released a statement regarding the unencrypted PSN passwords stored in their database. The issue was brought up on Sunday's presser, where Kazuo Hirai addressed the security breach and apologized to its customers.
Seybold clarified that while passwords were not encrypted, they were not stored in cleartext format either. Passwords "were transformed using a cryptographic hash function."
"There is a difference between these two types of security measures which is why we said the passwords had not been encrypted," Seybold said. "But I want to be very clear that the passwords were not stored in our database in cleartext form."
Source: PlayStation Blog