Earlier quoted context omitted.
MEGA servers store the hash of the password, not the password itself. Unlocking a key requires a real password but the server knows only the hashed version. This way they can't capture the real password to unlock. The trick would be to make sure server always gets only the hashed password. Even at website login, the password must be hashed before sending! We used similar crypto for http://timegt.com product where eve…
As long as the logins go via normal web page hashing the passwords before sending them does not really add that much security. If the security of the server is somehow compromised, it would be trivial to put up new Javascripts that send the cleartext password to server. Users are not likely to go through the Javascript to check what it is actually doing.
It would probably be easy to write your own login page or a browser toolbar that would either do the hashing on a page you control or check that the javascript was what it should be.
At that level of distrust however you might as well encrypt the stuff yourself (and send the decryption keys to the people you want to share with in some other, more annoying but secure, way)