My personal pet hate having gone from iPhone to Android and now owning an iPod Touch: re-entering in my password all the damn time. Especially when it's a free app.
As the father of a talented 3 year old: yes it does.
If clever children are the main argument against not requiring password confirmation, it sounds like "always require password on purchase" could be a great Parental Controls toggle.
What if your kid downloads an app that tracks your location constantly? Should apple make you enter your password when the app asks for permission?
Android Market / Play solves this by letting you set a PIN that's required to make purchases (which does not include Free app installs). It seems like a good compromise.
As nupark2 says, the password doesn't have to be involved. It's tempting me to change my password to something as short and simple as possible, which is pretty much the opposite of what I should be doing.
The android market (oops, i mean Play) has an option to require entering a PIN before a purchase is made.