create user, user exists

I'm having a bit of authentication trouble. I'm trying to use 'crypt'
authentication. PostgreSQL 7.1beta5. My pg_hba.conf is as follows:

#local all trust
local all crypt passtest

When I do 'local all trust', everything works fine. When I invert the
comment, it doesn't.

I created file passtest using pg_passwd, with the following
ownerships/permissions. I've recreated it several times, to make sure
I didn't make a typo when I entered the password.

-rw-rw-r-- 1 postgres postgres 43 Mar 16 12:38 passtest

1006$ psql -d rpeterso -U rpeterso -W
Password:
Welcome to psql, the PostgreSQL interactive terminal.
...

(switch to 'local all crypt passtest')

rpeterso(at)pagoda ~
1007$ psql -d rpeterso -U rpeterso -W
Password:
psql: Password authentication failed for user 'rpeterso'

Am I missing something?

-Ron-
GPG and other info at: http://www.yellowbank.com/