Just an FYI that that didn't really fix the problem.
I'm not 100% sure about this but I believe that the current version of SMF (1.1 Beta 3 Public) uses a different kind of password encryption than previous versions of SMF. One of the developers said this:
SMF 1.1 now uses sha1 for its password encryption. As we said - integrations that worked with 1.0 will most likely not with 1.1.
I'm not sure if this is what was causing the problems but the problems I was seeing were (applies to PhotoPost and Classifieds):
a) it was not properly detecting that someone was logged in and was showing the "login" and "register" links AND the "upload" link and allowing people to upload pictures/ads as Unregistered
b) the login screen was not letting people login even though their username and password was correct
So I inserted 2 hacks that circumvent this problem:
1. I made sure it doesn't show this "upload" link if photopost cannot properly tell whether they are logged in or not
2. I redirected the login to my own special screen that logs them in properly and then redirects them back to photpost
So perhaps when SMF 1.1 is out of it's "Beta state" the developers here could rewrite the photopost code for SMF so it detects logins properly?