I prefer that passwords are hashed, since this is non reversible. Of course there are hash tables to be able to be used as lookup tables, but this can be overcome using a salt source, like always adding something like *&username{^ to the password before hashing, or better off, you can add it to the hashed password, then rehash again. This makes it nearly impossible to lookup password.
Reversible encryption methods can be used if you have a strong encrypting method, and more importantly a strong key. As I said, hashing using MD5 with a salt source is really strong security, and I recommend that.