Imagine this scenario:
You’ve entered your password incorrectly several times. If you continue to enter the password unsuccessfully then your account will be blocked. If you don’t remember, or recover your password, then you’ll give up and never use the site again, or register for a new account unnecessarily.
I remember Blackberry phones would show your password in plain text if you had typed it in unsuccessfully several times, in order to help you recognise, diagnose and recover from errors.
This was a godsend, and an excellent bit of UX.
To be frank, when I created my password, it was infact different to what I thought it was. Using the function key to switch to special characters, switched me to a different special character to what I thought it was. Anyway, allowing me to see the password in plain text (and remembering which keys I had used) helped me to realise what my password really was, and get into my phone.
Nielson Norman have written about stopping password masking, and blackberry could have at least shown me each character for a second after I had typed it, then I would have at least known what my password was!
Back to the actual point of this post. On recovering my password recently on Yahoo, I noticed that they gave me the option to preview my password as plain text. I’ve seen very few websites do this. A solution like this aids in error prevention because the user will be able to see what their password is, and would help them to recall it, compared to a series of dots.