We needed to encode our passwords stored in a simple properties file using SHA 256, and also later base64 encode this hash. A few searches in the Spring documentation, and downloading the sources did the trick.
So, attached below are the configuration changes you need to make for the same:
Add the following entries to your Spring Application Context file:
Simple , easy and elegant.
I will keep posting as and when I discover new things about Spring Security 3.0.4