Thanks, that's hilarious. I can see someone thinking that unique passwords are a way to make sure that people aren't overusing common passwords - and not realizing that you are implicitly letting everyone know what passwords are currently in use.
Guild Wars 2 is like this. I was trying to use the same password for two accounts and received “Unavailable password. You or someone else has used it before."
Amazon used to have accounts where the email address was common, differing only in password. They were only phased out in the last year.