Hi!
It would be more intuitive, because for me setting a password hasn't much to do
with saving a document, if you would specify the password by a menu entry or a
button.

As a menu entry I imagine a new entry ('Set password') in the 'File' menu.
After a password has been set the 'Set password' entry should be replaced by a
menu called 'Edit password'. If you click it a dialogue should appear in which
you  can redefine the password.

Beneath the 'Edit password'-entry should another entry be added wich's called
'Remove password' (which of course removes the set password).

I know that you could add a button to the 'Edit password'-dialogue which does
the same, but I think there's a difference between editing and removing a
password. So it wouldn't be logical (at least not for me *g*).

Philipp