Your comparison to WPA isn't quite an analogy - in the case of WPA the access point has already selected the password for the network, only authentication is needed. For XMPP and other services, the user selects their own password. This step is where the password is sent (once) to the server, upon which it is hashed and stored. That step doesn't happen in WPA, however the owner of the access point does have to securely transmit the password to the clients somehow.