I assume the reason why they are not doing this for their previous titles is to avoid having to either anger existing customers who bought the code or have to refund them.
Whats worse is the kid didn't even do anything special. according to Summly's own website, they partnered with SRI International for the AI: "Summly came to SRI International with a core concept to solve the information overload problem, which is especially challenging for mobile devices because of their limited screen size," said David Israel, Ph.D. So SRI wrote the AI piece which does the heavy lifting, and the kid's company made pretty UI to display the summarized articles. $30 million well spent...
I think people are missing the point, regardless of why people are picking a terminal over human interaction, human contact is more and more in decline. It seems the bigger our cities and communities get, the less we wish to interact with one another.
Obviously sometimes you have no choice but to trust someone else's code, but there is a difference between blindly trusting all code versus evaluating the source of the code and deciding whether or not there is enough good faith for the source to be trusted.
Just because it's supposed to doesn't mean you should run untrusted code.
I'm not sure, but I would assume right after you attempt to login, they would take the password you just posted, truncate it to 16 chars, MD5/SHA1 it, update their records, and inform you that your password has been truncated. That would be the only possible way other than them storing your password in plain text.