Google is exploring ways to eliminate passwords as we know them. They are doing this by linking the trust you have with your phone to online trust. The idea is that instead of a password field you scan a QR code with your phone and your phones signs you in. Your browser updates and you're logged into from your computer. You can try Google's system here.
The advantage of this system is that your password is never entered into the computer. This is great because I hate entering passwords. We've also de-coupled the site security from your phone security.
Your phone is physical so it's much more secure. Random people on the internet will have a harder time getting hold of your phone to hack your password. Right now most sites have no physical security. Paypal, Amazon and many banks lack any physical security token.
Higher end security services make use of a security FOB. These are electronic keychains that have a cryptographic key, aligned with a timer. These add the physical security but from a user experience they make the user enter more data to login, rather then less.
Google's solution uses a QR code and QR codes are still a little; well, dorky. But the idea is sound and on path to less passwords.