The big problem is that /bin/passwd uses your TTY instead of STDIN/STDOUT to interact with the user.

This is absolutally true in most versions of passwd. However, some of the more recent versions of passwd provide you with an option to accept input from STDIN. This is the case with passwd that came with RedHat 7.1, and is packaged as version 0.64. It's described in the man page (man passwd), but in short all you have to say is

passwd --stdin

So ginseng, to modify the code you wrote to make use of this, you could do:

# The runtime options to be passed to passwd
my $passwd_options = "--stdin";

# All the arguments to be passed to passwd, including name
my @args = qw($passwd_options $name);

open (PASSWD, "|-") || exec 'passwd', @args;
print PASSWD "$password\n$password\n";
close PASSWD;
[download]

Again though, remember that you need a recent version of passwd. Just do a 'man passwd' and check to see if the --stdin option exists. Good luck,
-Eric