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.
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