There is a known bug in Joomla 3.2.0 in regards to password generation.
The fix is to either go to backend -> Plugins Manager -> Users - Joomla and click on save in order for the settings to save properly or upgrade to Joomla 3.2.2.
I've re-save the users plugin on your site.
Can you give this a try again and see if you are facing the same issue?