Activation Email contains different password than user signed up with

I have a WPMU install with Buddy Press using the community theme and nothing else.

When a user signs up from the main sites homepage, he is allowed to input his own password. When he receives the confirmation email it looks like this....

You can log in to the administrator account with the following information:
Username: lthiker
Password: 0bd2b014

Why is the system generating a random password if the user who signs up is allowed to create one? In addition, the random generated password does not work, only the one used at account creation.