Fixed for Gutsy.
>From pam's NEWS file (version 0.99.7.1-5ubuntu1, which has just entered Gutsy):
[...]
The password length 'max' option has also been deprecated in this
version because it was never written to work as suggested in the
documentation. If you are using pam_unix but a
"min" and "max" seem to be specific to Debian, and only get used
together with the "obscure" keyword: There's a debian-specific patch
(debian/patches-applied/007_modules_pam_unix), which adds the function
obscure_msg(), where "min" and "max" get handled.
If "md5" gets used, it assumes "unlimited p