Hi Iadalang,
Are you also planning on implementing some sort of token-based challenge/response system on the server side? Simply hashing a password before transmission is not a sufficient method of securing authentication. What you describe would likely be best accomplished by a custom authentication method based off of DNN's default (in /DesktopModules/Authentication/DNN). This would be a mildly difficult task for an experienced developer.
Based on the types of questions you asked in your original post, however, I would strongly recommend sticking with SSL. Have you considered generating your own SSL certificate (via SelfSSL, in the IIS resource toolkit)? Such a certificate would yield security during authentication, but you would still have to deal with root trust issues. This would depend on your target audience.
I always advise against roll-your-own authentication schemes!
Brandon