Well, that's an interesting proposal, but has weaknesses all of its own. I don't understand what you mean by using daily one time use salts with MD5 or SHA1. RC4 is a stream cipher, not a hash algorithm, and PKCS7 is cryptographic message syntax, not a padding specification. Given that a password is likely to be less than 16 characters in length, you are only going to have a single encrypted block, so I'm not sure what CBC mode gets you. So I'll ignore the cryptographic buzzword part of your proposal - please feel free to elaborate on it.
For the rest, complexity is the enemy of security. Using reversible encryption certainly lets you change the key every now and again, but now your super secret key must be present in the process that validates passwords, archived securely, etc. It can't just reside on a java card.
What additional security does using reversible encryption buy you? It prevents offline brute force attacks on the password database, but on the other hand, compromise of the key automatically compromises all passwords in that database. What additional security does changing the key buy you? It lets you decrypt and re-encrypt existing passwords, changing the value recorded in the database without the user having to change their password. Someone who had compromised your password database could now... what? Strong encryption already prevented offline brute force attacks, so changing the key regularly is only useful if someone has compromised your key, or you suspect they have. If they have done that they already have all your users existing passwords, requiring you to issue new passwords to all your users anyway. So key changing only mitigates the vulnerability that the key can decrypt all passwords - something salting doesn't suffer from in the first place.
Salting has the great advantage that it is simple, keeping cryptographic secrets is not required and is still good enough for most practical purposes. Compromise of a salt only lets an attacker mount a brute force attack against a single password. If you also use a tunable iterative password hashing algorithm, you can selectively increase the strength every year to keep up with advances in hardware. There are even hash algorithms designed not to work well on parallel GPU architectures.
By the way, I'm not saying that salting is the only way to do this, or that reversible encryption should never be used. Just that your proposal doesn't give me any confidence that my security would improve a lot, but does give me a lot of extra complexity and cost to manage.