No, this is retarded; the "unique nonreversable visualization" is trivially attacked offline by brute forcing with a dictionary of passwords. It's just the SHA1 of your password; fundamentally no different from tacking /etc/shadow to your password field as you type. It wouldn't be retarded if it wasn't expending a lot of effort (and confusing the hell out of users) to get to that bad destination. But that's what it d…
A: It only uses the first 20 bytes of the hash. You could narrow it down from this if you were really determined, but you'd not be able to reverse it.
B: The visualization of the sparkline doesn't have the fidelity to determine between characters 6 and 7. So you'd have a range of possible characters.
C: The alternative being suggested by Jakob Nielsen is no masking at all ( http://www.useit.com/alertbox/passwords.html ) - which is less secure? I know this isn't the best argument, but it still is -an- argument.
With that out of the way, my paranoid mind agrees with you in this context: just masking the passwords is the more secure solution. But that doesn't mean that experiments to provide a more usable approach with (arguably) equal security should be avoided.