It's all in the login module itself.

Are you saying that maybe we should just create a different login module to avoid the issues and changing the core?

Well, if it is a different module then it would probably be better if it replaced the one that is there now, otherwise it may get even more messy.

Not a bad idea, but it may cause trouble down the road since it is such a core part of the framework.  
They may decide to change something in the core login that you need and then you may never know, or it'll break on a release.

I had that problem in the early days with my CSS Skins package.  
It had it's own login so you could style it with the skin, and I had to update it several times on new core releases.