I think I have narrowed down the problem, reproducing it with live
lubuntu 13.10 which uses lightdm 1.8.5.
When an account that does not require a password to login is
preselected, password entry is clear text. Select a different account
that also does not require a password and it is still clear text. Select
an account that requires a password however and password entry becomes
hidden and remains that way for all subsequent account selections.
Account preselection can be disabled with 'greeter-hide-users=true' thus
ensuring password entry is always hidden.
Of course when a password isn't required, clicking the login button is
sufficient, but nothing prevents the user from entering their password
anyway. It is very easy to mistakenly or accidentally fill out the
password field with it being displayed in clear text for others to read.
I tried to recreate this issue on live lubuntu 14.04 Beta 2 which uses
lightdm 1.9.13 and was unable to, so it seems to have been since fixed.
Kestrel
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