Encryption: Use of initialization vector vs key?

No, in fact an IV is vital in most implementations. The IV is also considered to be safe for public use, for instance the IV is transmitted in plain text for WEP and WPA1/WPA2. The problem arises when this same key+iv is used to encrypt the same plain text. The cipher texts will be identical, unless you use an IV. If an attacker can encrypt arbitrary plain text with this key, and then view the cipher text. This is a much faster way of brute forcing other cipher text that the attacker has obtained.

Not only that, the IV must be random or you would be in violation of CWE-329. The reason why this is a problem is a bit more subtle and I didn't get it at first. You didn't mention this, but i hope you are using either the CBC or CMAC modes

The use of a hash function on a password is nearly identical to using a String2Key function. This is a solid design so long as an attacker can't use SQL Injection to obtain the key.

Initialization Vector (IV) is not a key at all, and is not secret. In fact, it is often exposed (e.g. prepended to the encrypted data). It is used as an additional random input to the encryption algorithm so that the result of encrypting the same clear data is different each time you use a different IV. This way, statistics cannot be gathered on the encrypted data. It does not "improve" the encryption strength by itself.

You can look here for nice diagrams showing how and why IV is used.

Do not use hashed password as a single source for key and IV. As a rule of thumb, you should generate random IV EVERY TIME you update encrypted data and store IV with this data. Key can be reused multiple times, but use salted hashing and store salt with data too.

If you just hash user passwords and use it as encryption keys, users with same passwords will have same keys. Depending on your database structure and intruder access rights there could be some unfortunate cases when users with same passwords can be detected. Add at least unique username to this hash.

If you do not change IV for every data update, information about data changes can be leaked. With CBC or CFB mode identical first plaintext blocks will be encrypted to identical ciphertext until first plaintext change, so position of this change can be determined.