Your library is not Unicode aware. Just passing it an AnsiString won't be enough because it probably uses strings internally to store data.
You could try to update that library, wait for the author to update it, or just use the MessageDigest_5.pas that ships with Delphi 2009. It is in the source\Win32\soap\wsdlimporter folder, which you will need to either add to your path, or explicitly include it in your project.
Here is some sample code using it in Delphi 2009:
uses Types, MessageDigest_5;
procedure TForm16.Edit1Change(Sender: TObject);
var
MD5: IMD5;
begin
MD5 := GetMD5;
MD5.Init;
MD5.Update(TByteDynArray(RawByteString(Edit1.Text)), Length(Edit1.Text));
Edit2.Text := LowerCase(MD5.AsString);
end;
And you are in business:
MD5(123456) = e10adc3949ba59abbe56e057f20f883e
You could wrap it in a simple function call if you wanted to. It is important you cast to a RawByteString before casting to a TByteDynArray since the RawByteString cast drops all the extra Unicode characters. Granted if the edit contains Unicode characters then you could end up with bad data.
Keep in mind that GetMD5 is returning an interface, so it is reference counted, etc.
Merry Christmas!