Absolutely untrue. IF that was the case, it wouldn't be so easy to just make these free wow servers that pops up all the time. If you ask me, its probably something a lot simpler, not SSL but perhaps as simple as smtp authentication, which is not encrypted, but the user/pass is sent in a 1-way encoded format. Still won't make it easy to crack but very possible at least.
Additionally, if you telnet into the auth servers you can actually see some clear text including the fact that it doesn't drop you. For example if you want to telnet into a HTTPS port, you actually have to use openssl tools and pipe your telnet connection through that to be able to see the cleartext.