Is ZenPhoto using a standard MD5 encryption for its users? If not, is it possible to change it so it uses a MD5 encryption.
(reason for this is i have to move over 200 users to a gallery system).

Depends on what you mean by standard. Anyway, there is a script--lib-auth.php--where all this sort of stuff happens. Currently we do a hash on the UserID+Password for stronger security.

It should be possible to copy the lib-auth.php file as lib-auth_custom.php and make your modifications. I think one other forum user has tried this, but I am not sure. You should know, though, that there have been some considerable changes to the script in the development cycle. You might be better off starting with the nightly build if you wish to take this approach.