I've stumbled across a blog post that indicates there's still confusion on some fundamental configuration issues. I will not even try to guess whether there is a wide consensus on how to configure a router, but these are the facts (and here is a ten year old position from Cisco):
- Type-7 encryption used in enable password has been broken. Source code for the decrypt program and cracker programs are available online, or you could use a router to do it for you.
- The type-7 encryption is reversible (and easily breakable due to a weak algorithm), whereas type-5 encryption is a one-way encryption that probably requires a dictionary attack to break.
- Based on the previous two facts, you should never use enable password. Use enable secret.
- The service password-encryption encodes passwords attached to local usernames with type-7 encryption. The usage of type-7 encryption is necessary as you might need the cleartext passwords in some authentication mechanisms (for example, CHAP). However, it's still better to have scrambled passwords than cleartext ones; at least a casual observer will not be able to read them. Conclusion: use service password-encryption.
- If your authentication methods don't need cleartext passwords (examples: local username/password authentication, local AAA authentication or PAP authentication), use username secret configuration command (available from IOS releases 12.2T, 12.3 and 12.0S).