My name is Matt Ryall. I'm a team lead on the Confluence development team at Atlassian.
How do I configure user password security such that a new user will be asked to change their password upon first log in? I am referring to on Confluence 3.5.7 version.
There's no way to do this automatically in Confluence. It would be a good idea for a feature request, if you'd like to raise it in JIRA.
To do it manually, after adding the user, you could visit /forgotuserpassword.action in your wiki and type in their username to send them a password-reset email.