You think the the pw encryption had anything to do with it as such a large amount hit the server at once? Since it is technically new to the software? Or atleast to us? Or new to your hardware?
I doubt it. Hashing one password takes only one-twentieth of a second, and it only happens when someone logs in.
https://bitcointalk.org/index.php?action=stats
So 20 simultaneous login attempts per second with random credentials is all it takes to lock up a core? Hopefully you at least limit login attempts per ip so they have to use a botnet or a bunch of proxies.
I think it's more likely a problem with MtGox, they've always had issues with heavy volume. God forbid anyone actually use their exchange.
+1 The outage just happened to be right as the order book took on MASSIVE shuffling.