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I use a hash. I don't quite know how secure that alone is though. My thoughts are if my server is compromised(and an endless stream of attempts lead me to believe it's not extremely unlikely) having both the scripts with the database could deduce the passwords. Am I wrong?

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You are. One of the defining properties of a cryptographic hash is that you cannot easily deduce the input given the output, nor can you easily construct an input to produce a given output. (see the overview at http://en.wikipedia.org/wiki/Cryptographic_hash)

However, it's still possible to do a dictionary attack on the database of hashes ("is the hash of "password" the same as the user's password hash? yes? Bingo!")

Provided, of course, that P != NP.

Message digest functions are not, generally, number-theoretic.

How is this relevant? The question of P ?= NP isn't limited to number-theoretic functions -- if P = NP then it is possible to find a preimage to any (polynomial time) hash function in polynomial time.

You're right.

You should use individual salting for each password to make this at least a bit more difficult.

A hash is a one way thing so you can't reverse it. However, if they have that much access it'd be trivial to just change your script to dump the username/password combo into a plain text file whenever the login succeeds.

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