Every single time I upgrade a very old site I run into a similar problem, and now with the release of v8, it has become critical.

To upgrade very old sites (we fairly often take these over) I use useLegacyEncoding="true" during the upgrade process in the Authorize step.

I have yet to come up with a good, consistent way of then upgrading the passwords - are there any docs or a best practice for this?

Now v8 seems to have removed the useLegacyEncoding="true", which means I have to grab a known hash from a new site and run an SQL update on the site being upgraded for the admin user. Again, are there any docs or a best practice for this?

Umbraco is an absolutely fantastic product, no doubt, but the upgrade process always always gives me hell, and the Authorize step is a big part of this.