No I didn't make it up, I have recovered passwords on encrypted volumes just as I said, and just as you can. It's been a few months since I last had to do this. After posting I realized I was unsure if the hashing algorithm was really MD5, went and looked at the actual hash after posting to make sure that I had it right, saw that it's SHA-1 not MD5, and appended the post with a prominently noted edit so it would be clear I wasn't trying to hide anything retroactively through edits.

edit: It's foolish downvoting these two posts. The information is factual. I corrected my error about the hash. Both MD5 and SHA-1 are vulnerable to rainbow tables folks. To fix the rainbow attack Apple should be using Two Fish instead of SHA-1 which is highly susceptible to this attack, which is why I was able to recover my password. If you can recover your password, you don't have security. Attempting to do so is a good exercise in finding out if you have security, at least it was for me and I now use much better admin passwords, though the better solution would be for Apple to upgrade to a much more resilient hash for passwords.