Unmasked Passwords! More or Less secure?

There's a fairly famous website which has been been going since the late 90s. that is solely about usability. The writer Jakob Nielsen has been writing about usability issues for well over ten years and the site is chock full of useful tips and gotchas to avoid both on the web and gui design. His June 23rd column states that he believes that masking passwords is not only less secure but also costs more in support issues.

It seems paradoxical but what he's saying is that because the password is not visible, people tend to choose simpler passwords. It would make better sense if the option to hide the password was given with a check-box and perhaps if it's really confidential make that option enabled (as it is now) by default. At work I tend to use a composite password made up of 3 lowercase letters plus the month in uppercase then 2 random digits. It has to be changed every so often.

My only concern would be the possibility of prying eyes, especially in an open plan environment. I always turn away when someone types in a password in front of me, just in case they think I'm watching their key-presses. So do you think people would accept a system with visible (but optional masked) passwords?