The PhpBB 3 integration file for X7 Chat 3 has been written now. By popular request this integration file has been backported to version 2, however doing so required some significant changes (read: an entire rewrite) of one of the X7 Chat 2 library files. There are both good and bad aspects to this; first, the bad news is that the installation is a bit more complicated and the simple autodetect & config feature of the installer is not compatible with PhpBB 3. The good news is that the new library can use very slightly modified copies of the X7 Chat 3 integration files, which means that as the integration files for X7 Chat 3 are released they will also become available for version 2, so eventually all of version 2's integration files should support the latest version of the software that they integrate with. Additionally, the new library supports guest access with integration enabled and is significantly more efficient that the old library.
How to Install (From the beginning)
1) Download the latest version of X7 Chat 2 from http://x7chat.com/download.php
2) Unzip the zip file and rename the folder x7chat2 to whatever you want (such as chat or chatroom)
3) Upload the folder into your PhpBB3 root directory, so that you access the contents by going to http://yoursite.com/phpbb3directory/x7chat2directory/
4) If necessary, CHMOD 777 the files and folders: ./logs/, ./mods/, ./uploads/, ./config.php (paths relative to the x7chat2 directory)
5) Visit http://yoursite.com/phpbb3directory/x7chat2directory/install.php and proceed with an un-integrated install. The installer may incorrectly detect your PhpBB 3 board and auto configure itself for integration, this means that on the step where you enter your database information you will need to select md5 as the Auth Type and enter appropriate database values (these might have been detected automatically ok)
Note: When you create the default admin account in the installer it MUST have the same username as your PhpBB 3 user account. If you did not or cannot use the same username, then use a different username that is not registered on your board and then register a PhpBB 3 user account with that name or disable registration to protect that account.
6) Delete the files install.php and upgradev1.php from the x7chat2 directory on the server after you finish going through all the steps in the installer. Your chatroom should be fully working as a stand alone chatroom at this point, if it does not, fix it before continuing.
7) Download this zip package: http://x7chat.com/mods/v2_improved_integration.zip
8) The zip file contains two important files, ./lib/auth.php and ./lib/auth/phpbb3.php. These need to be uploaded to the server in the appropriate location. The paths are relative to the x7chat2 directory on your server. When you upload auth.php you should overwrite the existing auth.php already on your server. When you upload phpbb3.php you may or may not have to overwrite an existing file.
9) After the files have been uploaded you need to edit the file config.php that is on the server inside the x7chat2 directory. Use your FTP client to download this file and then open it in a simple text editor. In the following line change md5 to phpbb3, then save the file and reupload it and overwrite the X7 Chat 2 config.php file stored on the server.
$X7CHAT_CONFIG['AUTH_MODE'] = "md5";
Warning: PhpBB 3's config file is also called config.php also, make sure you don't overwrite the PhpBB 3 config file with the X7 Chat 2 one or vice versa.
10) Your chatroom should be integrated with PhpBB 3 now. If you don't want to allow guests, go into the settings section of the admin panel and disable them. I would also recommend disabling registration in the X7 Chat 2 admin panel and just using PhpBB 3's account database. Unless you do this it is still possible for people to register accounts with the chatroom only and not with the forum and these accounts will work, but if a PhpBB 3 account with the same name is registered it will overwrite the X7 Chat 2 account even if that account is a registered account (and not a guest).
Please report any bugs that you discover with the new authentication library or the new integration file. At the moment consider it still in beta phase, it should work fine but hasn't been extensively tested.
One note: Changing your password in X7 Chat 2 will not work in many cases and will never change your PhpBB 3 password.