Hi Michael,
The ASP.NET membership providers support a variety of configurations, most (All?) of which are supported by DNN. If you are concerned about the plaintext transmission of passwords, you might consider disabling password retreival (enablePasswordReset), enabling password reset (enablePasswordReset), requiring a question and answer combination prior to allowing a user to reset (requireQuestionAndAnswer), and/or hashing passwords (versus encryption, using passwordformat).
All of these configuration settings are implemented under the ASP.NET membership element in your web.config. The default DNN configuration, while perhaps at non-zero risk for an intercepted password via e-mail transmission, is also probably the easiest to administer. When I recently implemented Commerce Server's UpmMembershipProvider within DNN, the provider's strict requirements (hashing, no retrieval, email addresses as username, etc) caused a lot of headaches. I wish I could have just enabled user retrieval of passwords via email!
Brandon