Dave- Klaus has given an excellent reply, he covers a number of issues which are worthy of reading carefully.
I’ll answer your new questions: excuse any poor English.
“You mentioned that Axcrypt 2.x doesn’t support Key Files. So for all of the encrypted files that I currently have which require a Key File, does that mean that 2.x will not be able to open those files?”
AxCrypt 2 supports the old key file but only to allow you to open the old AxCrypt 1.x files. You will get asked for your password at same time.
When AxCrypt 2 decrypts your AxCrypt 1.x files using your key file it’ll convert it into AxCrypt 2 version. At this point your key files are no longer needed.
“Once I close the file in 2.x, does it then save it using my 2.x master PW”
“or is the file still encrypted in the old 1.x 128 bit encrypted format using the memory password + key file pw combo?”
“If my email ever gets hacked then it sounds like the hacker can then easily access my local encrypted files by using some sort of recovery option that the Axcrypt team have engineered.”
Your email being hacked would not degrade your security. AxCrypt encrypts your files using password that only you know. With AxCrypt 2 you have associated online account. This is only created to allow you to easily share files with other people like wife or friends.
Your password is not tied to the email address. If you forget your password then you lose access to your files. The password only gives you access to online account.
You can “reset” password in AxCrypt 2 but this only allows you to setup a new password so you can continue using AxCrypt otherwise you’d be locked out forever. It “resets” password going forward. Any files encrypted with old password cannot be decrypted unless you remember old password.
A hacker getting access to your email would not change your security. All they could do is “reset” your online account password which would be pointless because AxCrypt online account doesn’t store your files. YOU still be able to decrypt your files but the hacker couldn’t (even if he got your file).
“Reset” in AxCrypt 2.x is like using a new password in AxCrypt 1.x
WARNING TO PEOPLE READING – AXCRYPT CANNOT DECRYPT YOUR FILES IF YOU FORGET YOUR PASSWORD. KEEP IT VERY SAFE.