1. If you're not reading mail over SSL you've got bigger problems than this; and
2. The problem is also password reuse. No one can remember a totally separate password for the 9827342 sites they've registered on. There are patterns and reuse (or a password manager, which is a little more clumsy but much safer although it then introduces other security issues). So when a password list of hacked as in this case or with Gawker, you almost certainly have compromised users' credentials on completely unrelated sites.
For example, what happens if you discover you've been hacked and all of your encrypted passwords have been stolen? No big deal. What happens if you discover a hacker has stolen auto-login links for a large number of accounts? Invalidate all of the existing ones and send out new ones. Compared to the problems of getting 100% completely owned (and screwing over your customers) due to storing and sending plain-text passwords, these problems are vastly preferable.
Yes, from a security standpoint it's bad practice to encourage users to click links in email, or to send one-click login links in email that don't expire in a short amount of time. However, not every website is a bank, and for the vast majority of sites protecting access to the site itself takes a backseat to securing the user's password (which more often than not tends to be shared amongst many sites).
Encrypted passwords are just as bad, because anybody that can steal your password store can probably get at your source code, or wherever it is that you store the key.
Store hashes instead.
If someone can get all your production code, data, AND configuration settings, you are screwed no matter what you are doing.
I guess e-mail sniffing could be a risk... but if that's an issue then we have larger problems.
OK I'm unusual in my usage habits, but I suspect a complete IP filtering (at least without a warning about it) would cause issues.