I am not able to replicate this issue using the latest version of Sitefinity 4 - SP1. I even used your machine key.
Note that you should update the SecurityConfig.config file and the default membership provider.
<add passwordFormat="Encrypted" enablePasswordRetrieval="true" name="Default" />
Here is the code I used
var userObj = Membership.GetUser(
var password = userObj.GetPassword();
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