Question says it all, should passwords be stored using 2 way encryption or just 1 way?
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Passwords should be stored via a salted hash. Encryption implies that you essentially want to/are able to decrypt it. A one way hash is best, then you can simply compare your existing hash to the one that the user uses to login or whatever the task.
Point is… one way hash.
Edit: As per Stevens comments. The following RFC 2898 covers some crucial hashing techniques. It also makes for a thumping good read.