For the record, I've had viruses and have been hacked in the past, but it never did any significant damage. Accounts are separated (unlike the writer of this article's), different services on my server are isolated as much as possible, I use a number of password levels, etc. The hacks were due to carelessness, something that can always happen accidentally. What should not occur is that you're completely fried when one account or one technology fails, like the writer of this article was (his twitter got hacked, all Apple devices were wiped).
What I think should happen is an improvement in terms of how we store password (for starters, don't write them down and put them next to your pc), how we enter passwords (keylogger vs. password manager hacked problem), how passwords are transferred, how passwords are handled on the server, and how we can do password-equivalent actions. By password-equivalent actions I mean anything that bypasses the need for the password, such as password resets.
When these things are improved, passwords are still perfectly fine in 2012. For high-risk systems such as banks you surely might want to use two-factor authentication, but generally a password should be fine - or at least an option for those who think they can keep it safe.