After the LulzSec hacking rampage, I finally found the motivation to do something I've been putting off for a long time: I switched to more secure passwords using password management software, so that I'm not using the same five passwords everywhere anymore. Surprisingly, it was a lot less painful than I thought it would be.
Similar to what Brinstar did, I'm using KeePass to store my passwords--I don't want to pay for a service, and I don't really like using closed-source tools for this kind of thing. But since I'm not feeling incredibly confident about Dropbox for secure materials right now (less because they've admitted being able to open your files to the government, more because they left the whole system wide open for four hours the other day), I'm not using them to store my database.
Instead, I'm taking advantage of the fact that Android phones act like USB hard drives when they're plugged into the computer. The 1.X branch of the KeePass desktop client is a portable executable, so it can run from the phone's memory card and use the same database as KeePassDroid. If I need a password from a real computer, I can just plug in my phone. I do keep a backup of the encrypted database uploaded to Google Docs storage, but that's behind two-factor authentication, so I think it's reasonably safe.
It's shallow of me, but for a long time I held off on this move because the screenshots on the KeePassDroid site are incredibly ugly. Fortunately, those are out of date. It's still not quite as attractive as alternative like Pocket or Tiny Password, but with the group font size turned down it can pass for "functional." And I like that it's not dependent on a third-party cloud provider like those are (Pocket has a client, and it's even in cross-platform Java, but it doesn't expose its database for USB access). I don't know if the author will take my patches, but I've submitted a few changes to the KeePassDroid layouts that make it look a little bit less "open source."
So what's the point? A password manager does almost nothing to keep my local data safe, or to protect me if someone steals my laptop with its cached passwords in Firefox. On the other hand, a common weakness in recent hacking incidents has been the use of shared (often weak) passwords across sites, so that if one falls the others go as well. Now my passwords are stronger, but more importantly, they're different from site to site. If someone acquires my Facebook login info, for example, that no longer gives them credentials to get into anything else.
It all comes down to the fact that I can secure my own data, but once it goes out on the web, I'm at the mercy of random (probably untrained) server administrators. That does not fill me with confidence, and it should probably make you a little uneasy as well. If so, my advice based on this experience would be to go ahead and make the switch to some kind of password-management system. Like keeping good backups, it's not nearly as hard as it sounds, and it'll be time well spent when the script kiddies strike again.