No regular user would ever turn the masking off
So what is the harm there? Even if a user could not figure out (oddly) what the checkbox does, he'll continue to get the password field to behave in the way he is accustomed to.
Surely, people will have trouble figure out the purpose of the checkbox in the beginning. But that's how things tend to be when you run into something for the first time. It takes some time before a style becomes standard.