He is right about the point, straight on. I've been thinking about implementing it on our web app at aleveo.com like that. Let me elaborate.
We all know that having a simple and usable register/login form increases signups. Let that aside, I've kicking out everything of our forms until really only the necessary. Among those things is the repeat password/email field, username (enough with those) etc. However, what if caps is on, or the keyboard layout is other and so on, the person will signup for your service, but next time he wants to login, if he is having issues with the form, you're done. He'll blame you, as he think he knows what he types as a password.
It is essentially wrong not to see what you are typing. If you noticed, Mr.Nielsen didn't go into implementation. He said that the concept is legacy. A good implementation would be having a checkbox next to the password field "[] show text" or similar, default unchecked.
An older person would definitively appreciate that, but it is not only for them, as it happens to me too (24 year old) to mistake until I figure out what I am really typing in (first keystroke swallowed, typing mistake, caps, wrong layout, etc)