If the Authentication Mode is set to Domain, when you click OK and Encrypted Passwords is set to No, it should tell you that Encrypted Passwords must be set to Yes if Authentication Mode is set to Domain.
How about if 'domain' is selected, the encrypt menu is set to 'yes' and set insensitive. That seems better.
Should be fixed in redhat-config-samba-1.0.1-6. Please test.
There is a stack of 64 bugs that have been in Modified state for a long period of time. I am closing these as Rawhide now. If you find that the issue is not fixed, please reopen this report.