Yes you need to set passwordFormat="Hashed" in order to use hashed password by default.
I checked code and I don't believe you can transfer passwords because hash result encoding is completely different and based on
return BitConverter.ToString(hashByteArray).Replace("-", "")
replace part in this code probably irreversible, unless dashes are deterministic. The only other way to use these passwords is to write your own provider and handle manually all users with legacy password format.