The benefit of the feat is permanent1: that is, the character can, at any point in time, consider the Reach weapons as either having Reach or not having Reach.
Thus, as part of a Full-Attack, a character could make a mix of attacks with Reach and without Reach, although each attack made without Reach would suffer a -2 penalty on the attack roll.
For Attack of Opportunities in particular, let us refer to the SRD:
You threaten all squares into which you can make a melee attack, even when it is not your action.
Since the Shorten Grip feat allows a character to make a melee attack both with Reach and without Reach, and in the apparent absence of any contradicting rule, it follows that said character threatens both areas.
As you noted, an Attack of Opportunity is a regular attack, and the character will therefore take a -2 penalty on the attack role when using the weapon without Reach to perform the Attack of Opportunity.
1 There is no action mentioned to switch grip, and no long-grip/short-grip state.
It is notable that there are many ways for a character wielding a Reach weapon to make Attacks of Opportunities in adjacent squares. Having the Improved Unarmed Strike feat, having a Natural Attack, or simply wearing Armor Spikes all allow such an attack, albeit without the bonuses linked to the Reach weapon.
Given that the Shorten Grip feat both requires taking a specific feat AND applies a penalty of -2 on the attack roll, it is, if anything, a rather weak feat.