Questions about passwords and apt-get update

After installing Knoppix to HD, it works great! Just a few questions 'tho:

How do I enable MD5 passwords? The 8-password character limit seems a bit small.

Is there any way to update a singular package rather than the entire system? For example, if I wanted to upgrade gaim or x-chat to the latest version, is there any way of doing that? Should I just uninstall without removing config files then re-install, or can you manually update singular packages?

(Please keep in mind that I am still quite a linux newbie, thanks in advanced.)

just reinstall it again with

apt-get install <package>.

If there are newer version, it would be upgraded.