R – Is it OK to go from Hashed to Encrypted password type in an ASP.NET membership provider

Never.

There is never a good reason to store passwords in your database, ever. Especially not in clear text. You should be storing the hash of the password only.

The worst thing you can do to a user is broadcast their "recovered" password across the Internet in a clear-text e-mail. It is so easy to simply store a one-way hash of the password which cannot be recovered.

For lost passwords, you simply reset their password and give them a temporary password which they have to change when they log in. Safe and secure.

People often use the same passwords for multiple applications (especially non-technical users). So your application will likely contain the passwords for people's bank accounts, email, etc.

You have a responsibility to secure users' passwords, no matter how trivial your application is.

Storing passwords in recoverable format is a very poor idea. If you can recover them so can anyone who breaks into your server.

You're better off using a standard hash+salt approach and having a password reset mechanism to handle the case where users forget their password.