Keep in mind the Muse webBasic plans do not include email.
The password recovery email address is an email address that they could have their password emailed to in case they forget it. Obviously sending it to the same email address wouldn't work as they wouldn't be able to get it.
Yes, the email address would be @clientdomain.com ....
As a side note I recommend hosting the email with where ever they bought the domain from and only use Business CAtalyst for the site itself.
Here is why ...
I already read your article and I'm probably going to do what you suggest. Thanks.