He doesn't like it. Me neither. 777? Too liberal, really not needed. Username and password on a configuration file? Ugh.
What's wrong with the username and pass stored in a config file? Almost all PHP apps store their database credentials in a config.php as well.
I haven't done much FTP or shared hosts since, maybe, 7-8 years, but I remember Wordpress has the same 0777 is bad practice for many years and hasn't changed.
777 is never a good option.
[1]: http://codex.wordpress.org/Changing_File_Permissions#Shared_...
Anyway, these days, for a couple dollars you can have a really really good cloud hosting service.