The problem with using the pwencrypt function is that Microsoft can and does change the encryption algorithm at will.  It was changed from SQL 6.5 to SQL 7, and again from SQL 7 to SQL 2000, and again from SQL 2000 to SQL 2005.  It can also be changed at service pack revisions.

This means that if you start encrypting your data within SQL 2000, and you upgrade to SQL 2005, your stored encrypted version will no longer match the value that was encrypted.