Whether your password is transferred in plaintext or encrypted basically depends on whether you're using an encrypted connection (such as HTTPS, HTTP via SSH would also work

, etc.) or not (such as plain HTTP).
The question whether HTTPS is available is handled by the webserver, therefore there is not much phpBB could do to provide HTTPS. phpBB however works with HTTPS, as it does with HTTP.
phpBB 3 uses the
Portable PHP password hashing framework to store passwords as hashes in the database.
Hashing on the client side does not work properly, as the hash would become the new plaintext password and it also requires some sort of scripting such as JavaScript to do the hashing. Once intercepted, one can use the hash to login.
To make sure one can only access one site if your password has been intercepted, use common sense and use a different password on every site. Even using HTTPS does not guarantee that your password is completly secure. If an attacker has access to the other side of the encryption channel, such as the webserver on the other side, your password could still be taken as it is plaintext at some point.
However, what phpBB could do (and we're looking into that) is use a full-blown private-public-key mechanism/system like RSA to encrypt the password transfer on login. An example implementation would be
jCryption, which is based on jQuery and again requires JavaScript.