Very cool stuff. This is one of those things that seems kind of surreal to see actually functioning. It has some issues to be worked out for sure, but the fact that it exists at all is really good for preservation efforts, and it can only improve.
As far as the password thing, yeah, they have always been kind of useless. There's ways to get around them, and I'd encourage anyone who reads this, and makes a quest, do NOT make your quest password the same as other, real passwords. I know this sounds like common sense, but seriously ZC quest passwords are not that secure.
EDIT: Played a bit more than a few minutes now, and I can say this runs well for me. I don't see much, or any lag in game, and while it's odd to see "load times" in ZC, it isn't really that long, and hell, even in regular ZC loading certain quests can take a few seconds.
One suggestion; switch the default A/B inputs. Most people use Z and X, which I appreciate, but having Z be A makes it opposite of how most people who play that way would intuit it imo. Thankfully, you can access, and change keyboard controls, and access all of the ZC menus in the browser so it's really a non-issue, just a minor thing.
Seriously, this is cool stuff!