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I’ve carefully tested and retested this – once a user has been approved, the password they registered with does not work, the administrator has to reset it manually (n.b. there’s nothing odd about the passwords used, I can reset it using the same password that was used at registration and it works).
If I turn the plugin off, new registrations work as expected.
Note: this is going through the WooCommerce registration page, using the latest version of both WooCommerce and WordPress.