OK, so I finally got the root password thing figured out...
In Cydia, search for MobileTerminal but make sure you get the one that says iOS 4 in the description or title. It should be version 426. Do not download the older one (version 364.1-10) as it will just crash whenever you open it.
The actual password stuff is pretty standard. Do the following commands:
su root
passwd
passwd mobile
When it asks you for a password after the su root command, use alpine. This is the default root password that you want to change. When it asks you for a password after the passwd command, this is the new password you are changing to. Use whatever you want, but try to make it difficult to hammer. The passwd mobile command is the same as what you just did except it changes the password for the mobile account on the phone, instead of the root account.
This is probably the single most important thing to do after jailbreaking. Cydia (or Rock) does not filter out all the malicious apps for you like the App Store does.
Edit: You may have to add a new repository in order to get the new MobileTerminal to show up. I don't think it's been released to the default repos yet.
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