Open Group Policy and go to Computer Configuration, Windows Settings, Security Settings, Local Policies, Security Options. In the right-hand pane double-click Network Security: Do not store LAN Manager hash value on next password change, select Enabled button and then click OK.
For Windows XP you can use the Local Security Policy to disable LAN Manager hash. Open Local Security Policy console, go to Local Policies, Security Options and in the right-hand pane double-click Network security: Do not store LAN Manager hash value on next password change. Click on the Enabled button and then click OK (see Figure 1 below). Make sure you change the password after you make this change.

Figure 1 Disabling LAN Manager Hash Using Local Security Policy

Figure 2 Disabling LAN Manager Hash Using
Registry Editor
I believe it's about time that we start teaching everyone to use pass phrases, instead of passwords. Obviously, there are some of you out there who may be already doing that, and that's great. For those of you who are still using passwords, you might want to consider using pass phrases. It's hard for people to come up with long words, mixed with uppercase and lowercase characters, numbers, and special characters. It's much easier to remember pass phrases. In addition, pass phrases with spaces can make a password longer, and therefore, more secure. For security purposes encourage users to use pass phrases longer than 14 characters. Longer pass phrases are not only harder to guess, they are also harder to crack with a password cracking program.
ALT-Key Combinations
To make a pass phrase even harder to break, you can use Unicode characters in ALT-key combinations. For example, to enter a Unicode character €, you will hold down the ALT key and type 0128 on the numeric keypad. You must use the numeric keypad, the numbers above the keyboard will not work. There are some ALT-key combinations that are not recommended, such as ALT-0169 which is the copyright symbol ©, or ALT-0174 which is the registered trademark symbol ®, because these are automatically converted to uppercase C or R. Figure 3 lists the recommended ALT-key combinations that you should use.

Figure 3 ALT Key
Combinations
Let’s look at some examples of pass phrases. These examples will give you an idea of the types of pass phrases that might be easier to remember.
Good pass phrase:
I wish it would only rain 4 times each year
Better pass phrase:
I wish it would only r@in 4 times each Year
Even better pass phrase:
I wish it would only r@in 4 times €ach Year!
The last example has uppercase and lowercase characters, a number, special characters "@" and "!", and an ALT-key combination "€", which makes it a very good choice for a pass phrase. Not to mention the fact that it has a total of 44 characters, including spaces, which will make it very hard to crack. Obviously, it is also relatively harder to remember or type. Do you really need a pass phrase that’s 44 characters long? This next section on password complexity will help you decide what the best length may be for your environment.
Password Complexity Examples
It's interesting to note how adding only one or two characters to a password can make it exponentially secure. The following examples show how many attempts per second it will take to crack a password. The examples assume that your password expires in 60 days. You can easily calculate these numbers for your environment if the duration of your password expiration is different.
Password is 6 characters long, expires in 60 days
94 possible characters in the password
26 uppercase + 26 lowercase + 32 special + 10 numbers = 94
946 = 689,869,781,056 unique password permutations
Need 133,076 password attempts/sec to attempt all combinations
(946/60 days (5184000 seconds) = 133,076)
Password is 7 characters long, expires in 60 days
94 possible characters in the password
26 uppercase + 26 lowercase + 32 special + 10 numbers = 94
947 = 64,847,759,419,264 unique password permutations
Need 12,509,212 password attempts/sec to attempt all combinations
(947/60 days (5184000 seconds) = 12,509,212)

Figure 4 Password Permutations
Considering an average password
cracking program takes about a million attempts per
second to crack your password, you can imagine how
long it will take to break even the first pass
phrase in the above example that contains 43
characters (I wish it would only rain 4 times each
year). The third pass phrase with 44 characters (I
wish it would only r @ in 4 times €
ach Y ear!) will be extremely hard to crack
because it includes a Unicode character so the
possible characters will be far more than 94.
Forcing the Use of Longer Passwords
On a Windows Server 2003 you can force users to use
passwords longer than 14 characters by using ADSI
Edit, as described below.
1. Start ADSI Edit.
2. Go to the domain object, e.g. DC=TechGalaxy,DC=net.
3. Right-click and select Properties.
4. Look for an attribute called MinPwdLength.
5. Edit the value and enter a new minimum length for
the password. The default value is 7.
In
Windows 2000 you can edit the .adm file to
force users to use a password that's more than 14
characters. In Windows Server 2003 this technique
doesn't work. In fact, if you try this in Windows
Server 2003 and set the password length to more than
14 characters, you will get errors and the password
length will be set to 7. Luckily, you can use ADSI
Edit to work around this problem.
Conclusion
As you can see, using pass phrases is a much better idea
than using shorter passwords. You should disable LAN
Manager hash, if possible, and encourage (even force)
users to use pass phrases that are longer than 14
characters. In a mixed environment where you have
clients running earlier versions of Windows, this can
break a lot of things. If your clients are running
Windows 2000 or Windows XP you should definitely enhance
your
security by taking advantage of the techniques
mentioned in this article.
Even if you are running Windows NT or Windows 9x
computers on your network you can still improve your
security by using NTLMv2 authentication. Your passwords
will still be limited to 14 characters but NTLMv2 takes
advantage of all 14 characters in your password, rather
than the way LAN Manager authentication handles the
passwords by breaking it down into two seven characters
chunks, which are much easier to attack. Check out the
article “How to Disable LM Authentication on Windows NT”
(Q147706)
for more details on this topic.
