Think of the username and password as a tracking cookie, more than actual authentication.

Yep, I remember both being sent via plaintext.

RFC 1459 Internet Relay Chat[1] clearly shows in its example that it uses plaintext passwords:

  Example:
    PASS secretpasswordhere

It also explains how the server password can be set either globally or per client.

[1] http://tools.ietf.org/html/rfc1459#section-4.1.1