There are couple of approaches.
1. You can probably override the MysqlDialect and do a "registerFunction" for the mysql PASSWORD function and use that in your HQL. I havent tried this, but it might be something to explore. Take a look at the Mysqldialect code and youd see the current registration for standard functions
2. use the madcow library (
http://madcow.tigris.org). This is a library that provides a oneway authentication(which is the same used by mysql). If you encrypt the password using madcow library, itd be the same as using a PASSWORD('...') in mysql. This is what we use(although we dont use Hibernate).
Also please note that this madcow implementation is valid for mysql 4.0.x. Im not sure if it supports 4.1 but im definitely sure that it wont support mysql 5 as the password hashing algorithm has changed in mysql 5.