Anyway, the system above would seem to not be viable if you need to loose the passwords.
You're right, it would be appropriate for that kind of situation. But Iridian did give me an example of what one of their clients, a bank, uses it for: vault access. In fact, the scanner is connected to a silent alarm that can tell the difference between left and right irises. If the normal access is done with the right, an "alarmed" scan is done with the left. Say the bank is being robbed and demands the vault be opened. The manager goes to the vault and gains access by having the scanner scan his left eye. This will open the vault while at the same time triggering a silent alarm to the police. IIRC, it can apparently also pick up stresses in an individual, it's that accurate.

Cheaper fingerprint readers have higher FAR/FRR/CERs and tend to have the problem of "gelatin" molds being able to trick them. That said, prices are definately coming down and the technology is certainly improving. One of the better options is a scanner that ensures that the biometric is attached to a living body (Minority Report anyone?).

The biggest thing is that we combine our authentication so that we're not relying on a single method ("What you know" or memory based authentication of user/pass). Using tokens like those by RSA, a smart card option or some other method along with the user/pass makes things more difficult for the attacker. Proper training, however, can make it fluid for the user.