Security = share to allow samba to authenticate against the local passwd
files correct?

AFAIK, SAMBA can't authenticate against local /etc/passwd, since SAMBA
needs the LM or NTLM hashes of the password which, of course, are not
stored in /etc/passwd or /etc/shadow. Usually, UNIX passwords are
hashed with MD5, or encrypted with Blowfish, then stored into
/etc/shadow, but no LM or NTLM hashes are calculated and stored in
that file

You must use a backend that supports storing LM and NTLM hashes, such
as ldapsam or tdb.
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