(A) Database passwords are a security risk. You don't want them escaping to other servers when you clone or share code.
(B) Wordpress is commodity software. You are unlikely to need custom modifications to the source. "I'm on version 3.4.2" is sane enough version control.
(C) Database passwords are ephemeral. You don't need to keep a durable record of them. If your hard drive fails or you otherwise lose your record of them, you can just change the password. What is needed is a good backup strategy, not a durable password.
I would say live editing wp-config.php outside of version control is the best strategy, until you start needing to synchronize multiple webservers. At that point you should switch to some deployment and configuration manager like Chef or Puppet, not put passwords into version control.