What protocol provides a special way to encrypt a password being sent via ms-chap v2, allowing checks to be performed on a server's certificate, but still utilizing user authentication with passwords?

The correct answer is Protected Extensible Authentication Protocol (PEAP).

Explanation:

PEAP, developed by Microsoft, RSA security and Cisco system, a protocol that enclose the encrypted authentication protocol (EAP) within an authenticated and encrypted layer security. It creates a secure tunnel between server and client and provide security.

There are two sub-types of PEAP are as follows-

MS-CHAPv2 or PEAPv0, an updated version of PEAP which allows to check the performance on server's certificate.