“There are many, many valid reasons why people would want to paste passwords in order to increase their security profile yet the perception of those blocking this practice is that it actually decreases security.”

So stupid. Short of photographic memory, the best way to keep your passwords secure is to let a password management service like 1Password or LastPass (that's what I use) generate a long, unique, random string of characters for each account that requires a password, and then remember them for you. Crucial for these services to work, however, is the users' ability to copy passwords from their password manager and paste them into a website.

'Security theatre' sounds about right.