the code was largely buggy and couldn't work. Since I've updated the doc accordingly (faq).

$ cubicweb-ctl shell <instance>
>>> from cubicweb import Binary
>>> from cubicweb.server.utils import crypt_password
>>> crypted = crypt_password('joepass')
>>> rset = rql('Any U WHERE U is CWUser, U login "joe"')
>>> joe = rset.get_entity(0,0)
>>> joe.set_attributes(upassword=Binary(crypted))