Confirming...
Once likewise-open is installed (whether a domain is joined or not), running 
"passwd" to change a local password fails: it never prompts for a new password. 
(Changing a domain password works.)

It also always returns "passwd: password updated successfully"

I suppose there is something wrong in the PAM stack:
password        [success=2 default=ignore]      pam_lwidentity.so 
password        [success=1 default=ignore]      pam_unix.so obscure use_authtok 
try_first_pass sha512
password        requisite                       pam_deny.so
password        required                        pam_permit.so

use_authtok forces pam_unix.so use the password entered for
pam_lwidentity.so... but if the user is not in the domain there is no
such token. There is little to gain in reusing passwords between
pam_lwidentity.so and pam_unix.so, since they aren't targeting the same
users...

As a dirty workaround "use_authtok" can be removed from 
/etc/pam.d/common-password:
password        [success=1 default=ignore]      pam_unix.so obscure use_authtok 
try_first_pass sha512
(that change will be overridden next time pam-auth-update is run)

** Changed in: likewise-open (Ubuntu)
       Status: New => Confirmed

-- 
likewise-open prevents local passwords from being changed
https://bugs.launchpad.net/bugs/302026
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