I have not found a way of doing this in SME: something, somewhere prevents this.
BUT
You can log on at the console (or using a terminal program from your PC) and reset the password for your users directly, one at a time. eg to set the password for user "freddy"
passwd freddy
You can use a shorter password at this point.
However, you should heed the warnings about security - if you have weaker passwords you should have stronger physical security. We never think our data is valuable until we have to replace it.
Cheers
Ian