What we really need is to stop using passwords. Passwords are awful UX design solution. The users have to think of and remember some meaningless phrase to get the service they really needed. If you use easy password, your account can be hacked. If you use difficult password, you won't remember it in a week. For some people remembering a password or login might be especially difficult. You can use software to generate…
Hardware might be a nicer UX (though god forbid you forget your dongle one day and are completely screwed). But I fail to see how it's more secure without a second form of authentication.
No, I always know where my dongle is.