No regular user would ever turn the masking off. They simply don't click on these additional options. Heck, they don't even understand why it's there. Can you explain what's the checkbox's purpose? Why and when should it be turned off?
As a security expert, you should provide what's more secure, even if that means recognizing the users are too dumb to follow your rules.
So what is the harm there? Even if a user could not figure out (oddly) what the checkbox does, he'll continue to get the password field to behave in the way he is accustomed to.
Surely, people will have trouble figure out the purpose of the checkbox in the beginning. But that's how things tend to be when you run into something for the first time. It takes some time before a style becomes standard.
And what data do you have? I don't have statistics favouring a checkbox password masking option neither.
We're into untested territory thinking here, and I don't believe calling for statistics will disprove anyone. In the absence of hard numbers, I take your challenge.
staunch, I bet you $25 (via PayPal) that two users will not uncheck password masking off, when presented with an explanation what it's for, without looking either to the left, right or behind before typing the password.
I think the percentage will come down to demographics, the kind of site, the copy, and ten other variables. My wild guess is that it will be 5%+ without trying hard.
I'll probably try this on one of my sites (I've tried no masking before). Maybe I'll blog it. You can keep your $25.
By default, the masking would be enabled. All you see are "*".
If however, you have some nasty password and you are in a safe location, you can do_action and turn off stars to "12345".