Replacing default display name to login name

Based on this this answer:

add_action( 'wp_login', 'wpse_9326315_format_user_display_name_on_login' );

function wpse_9326315_format_user_display_name_on_login( $username ) {
    $user = get_user_by( 'login', $username );

    $userdata = array(
        'ID' => $user->ID,
        'display_name' => $user->user_login,
    );

    wp_update_user( $userdata );

}

As soon as they log-in the settings gets changed. So you not only affect new users but also existing ones.