The Radius traffic between the PIX and the IAS server will still have the password encrypted based on the shared key that you have set up on each device, this is standard Radius.
The PIX will receive the users password over the Phase 1 IKE tunnel so this is safe as it passes over the Internet. It will then pass that password to the internal Radius server as a standard PAP password, but as I said, Radius will encrypt that section of the packet that contains the password automatically.