I am sure it will be something easy I am overlooking.

Membership does not send out email notifications and does not allow password reset or retrieval.

I think I need to set something up in here?

<!-- Configuration for AspNetSqlMembershipProvider:
                connectionStringName="string"               Name corresponding to the entry in <connectionStrings> section where the connection string for the provider is specified
                maxInvalidPasswordAttempts="int"            The number of failed password attempts, or failed password answer attempts that are allowed before locking out a user?s account
                passwordAttemptWindow="int"                 The time window, in minutes, during which failed password attempts and failed password answer attempts are tracked
                enablePasswordRetrieval="[true|false]"      Should the provider support password retrievals
                enablePasswordReset="[true|false]"          Should the provider support password resets
                requiresQuestionAndAnswer="[true|false]"    Should the provider require Q & A
                minRequiredPasswordLength="int"        The minimum password length
                minRequiredNonalphanumericCharacters="int"  The minimum number of non-alphanumeric characters
                applicationName="string"                    Optional string to identity the application: defaults to Application Metabase path
                requiresUniqueEmail="[true|false]"          Should the provider require a unique email to be specified
                passwordFormat="[Clear|Hashed|Encrypted]"   Storage format for the password: Hashed (SHA1), Clear or Encrypted (Triple-DES)
                description="string"                        Description of what the provider does
                -->
<add name="AspNetSqlMembershipProvider" type="System.Web.Security.SqlMembershipProvider" connectionStringName="SiteSqlServer" enablePasswordRetrieval="true" enablePasswordReset="true" requiresQuestionAndAnswer="false" minRequiredPasswordLength="7" minRequiredNonalphanumericCharacters="0" requiresUniqueEmail="false" passwordFormat="Encrypted" applicationName="DotNetNuke" description="Stores and retrieves membership data from the local Microsoft SQL Server database"/>
</providers>
</membership>
</system.web>

I'm actually having this same issue. I have to go and manually authorize users at my site (www.wattographs.com).

Now, I'm getting reports that for some people, they cannot stay logged in.

Haven't been able to find any solutions :/

Yes, and the test email works but that is it.  I will go through bit by bit and be sure everything is set as it should be I guess.