I tried this at home last night. Very not cool. "Massive security hole" just doesn't seem adequate. Thanks for posting this.
Don't buy the FUD. Use the tools Firefox provides to protect your information. If you leave all your stuff in clear text without password protection, of course someone can see your stuff when they are on your computer. Personally, I think having a master password should be the default behavior, but the option is still there even if they don't force you to use it.
Use a good master password, and you'll be safe from all but the most determined adversaries.