vsftpd will not accept passwords encrypted with MD5

htpasswd generates MD5 hashes in the Apache format, which you can verify by seeing that they start with $apr1$, but PAM only supports formats that your platform's implementation of crypt(3) implements. For Glibc, the equivalent (MD5-based) would be $1$. You just need to generate the passwords with a different tool. Here's an example:

sh$ openssl passwd -1
Password: 
Verifying - Password: 
$1$vhzHvIYn$2Ro.R0WdLnxrWjHcs5RbA/

You can copy this hash into your ftpd.passwd file in the username:hash format, and it should work.

Expanding on @bonsaiviking's answer you can generate the openssl md5 password and add it to the ftpd.passwd file in one line using htpasswd's batch mode -b, and plaintext -p options as follows:

htpasswd -c -p -b ftpd.passwd *username* $(openssl passwd -1 -noverify *password*)

The example above (Ubuntu) also creates a new ftpd.passwd file if it doesn't exist using -c