Jakob Nielsen implores web developers to stop masking passwords in web input forms. I have to admit I never thought about it this way.

Usability suffers when users type in passwords and the only feedback they get is a row of bullets. Typically, masking passwords doesn’t even increase security, but it does cost you business due to login failures.

The only case when you would need to mask passwords is when the user is in a public space, in which case Jakob proposes there be a check box to mask the password in the input form. (via Kottke)