In other words, you'd like the encode the configuration data in your PHP script so that prying eyes with notepad/pico can't take a peek at your DB info?
I myself have pondered this question before. I never did find a way to go about it. I don't even know if it's possible. First of all, you can't encode EVERYTHING; how would the MySQL know what your username is? Use md5() on every username in the privilege table to find one that matches your hash?
That wouldn't work, because first PHP would have to break your MD5 hash to even find out the hostname to connect to. While this may be possible using some algorithm, I'm sure it would take any number of days/weeks/months/years just to decode one hash depending on length.
Now, in theory you could encode just the password, and tell the MySQL server to compare the password for 'username' without calculating the MD5 hash of the given password (since you've already given it a hash). How exactly you would do this, I'm not sure.
Like I said, I don't even know if this is possible.