There are other reasons, too. If you're connected to the network, there's a chance that someone can read your screen if they've installed VNC software on your system. Also, a good password system will allow your password to travel only as far as it has to, to verify it's correct. In other words, it will only retrieve the password to those parts of the program that grab it, then signal a keypress to the rest of the program that displays stuff on the screen. Rewriting the software to display the proper characters can be a considerable task, add more work to the process, and potentially open up even more security problems.
So, while it is possible to "turn off" this feature, it's probably not worth the time. It gets to be pretty natural once you do it a while, and most things that require passwords do this, so you might as well get used to it. (Unless you're an outstanding coder with time to rewrite all the software you use...and every new version that comes out.)
If it makes you feel any better, at least you're seeing something. High security options give no feedback at all, because just knowing the user name and how many characters are in the password gives an intruder a huge advantage. A few systems don't even display a box telling you that they expect a password.