Just to clarify on somethings...
I've never agreed with the masking password field thing on registration, it doesn't change the way it is stored\submitted on the server... only causes inconvenience for the user. Apparently it's to prevent shoulder peeping? As it is a simple change I'll go ahead and enable it.
With that said, I understand the email issue... personally I change my passwords anytime I get it via email whether it's reset\registration, etc. But I understand not everyone does what I do, so I'll fix that so passwords are no longer emailed and if someone 'forgets' the email clearly tells them to login and change it immediately. If I have time I'll force a password change upon login from a reset.
Passwords are encrypted in all of our systems, it was very difficult to do encryption with the VPN setup due to radius but it is done. Overall I think the way we handle things in general between all the systems\sites we have is very secure compared to the industry norm.