Hi Pat,
As i understand it, there is still some weak form of recapitution during development, so the idea is not entirely dead, just in a much softer form than
the ideas of Haeckel, who i am led to believe wasnt entirely truthful about his data and observations in a few cases.
But, im not going to agree on this being useful to understand larval insects, as those with distinct larvae (in a group called Holometabola including beetles and flies) are a derived group, meaning they definately evolved from ancestors without distinct larval forms, the ancestors being insects similar to mayflies and dragonflies, which have juvenile nymphs, and also wingless insects like silverfish and firebrates, again with juvenile nymphs.
So i hope when you are talking about larvae, i think you mean the juvenile forms we can refer to as maggots (in some flies), or catepillars (butterflies, moths), and various other names like larvae (particularly for beetles). All these are holometabolan insects, which have a tripartite life with distict larvae-pupae-adult. There are a few exceptions, but thats it in the rough overview. Now, its currently a bit debated which other group of insects is closest, either Paraneoptera (which includes things like aphids) or Polyneoptera (which includes things like earwigs and crickets), but it doesnt really matter. Point is these other groups of insects dont have larvae, their juvenile forms are much like the adults, just without wings, with undeveloped sexual organs, and a few other minor differences. In these other insects the juveniles are callled nymphs. Same with other definately more basal insects like dragonflies, damselflies and mayflies..as i mentioned above. etc etc.
Point is, that in all these other insects, which emerged as distinct forms earlier on in the evolution of the group, all had juveniles are more similar to the adult form, and consequently, we can be confident that the distinct larvae of holometabolan insects is derived, rather than possibly representative of the ancestral forms.
Well, if larval forms of holometabolan insects is indeed a greatly expanded developmental stage, which is indeed possible, then its an expanded stage of the very early development in their ancestors, while many later stages 'instars' that are seen in nymphs of other insects are lost. Thats a huge shift, and not totally unreasonable, but i dont think there is any real capacity for the larval stage to indicate anything like recaptulation of the ancestral forms.
Finally, a note to Ajna ... there are huge problems with relating aspects of velvet worms to the larval forms of insects. There are many other major branches of the arthropod tree between these lineages, ie chelicerates and myriapods. As you know, there is very strong evidence that 'Crustacea' are actually the sister-group to insects, so if we want to understand the early evolution of insects we should appeal to those closer relatives rather than more distant ones. Otherwise you have the danger of comming up with some absurd theory of genetic-exchange between velvet worms and insects as an 'astonishing and absurd claim', and getting ridiculed for a terrible paper in PNAS..... :)