Under Moodle 1.8 it's possible to define the auth db plugin to work with "internal" passwords, i.e. all the data is fetched from external db.... as usual but password handling is performed by Moodle internally.
This should, if I'm not wrong, provide these features:
1) Handling of forgotten passwords (by email...).
2) Ability to change password.
3) Sync back the password field to the ext DB table.
So, I've defined one site to work with auth db (with "internal" passwords) and I've found this:
1) The forgot pass utility sends me one email telling that this site doesn't support this feature. It should IMO.
2) The change password works ok, but there is one missing return in user_update_password() causing a wrong message ("cannot update password") to be showed.
3) I'm not sure if changed passwords are sent back to the ext db. They should, IMO.
All this, of course, only if "internal" password method is configured in the auth db plugin.