I may be slightly off-topic as you did mention the need for a username and password, and my understanding of the issue is admitedly not the best but is OpenID something worth considering?
If you use OpenID then you don't end up storing any credentials at all if I understand the technology correctly and users can use credentials that they already have, avoiding the need to create a new identity that is specific to your application.
It may not be suitable if the application in question is purely for internal use though
RPX provides a nice easy way to intergrate OpenID support into an application.