The most important quality of money is trust. If something that acts as money loses trust, it stops acting as money. History is full of failed currencies whose demise was brought about through the loss of trust in the governments backing those currencies.  

In the summer of 2011, when a Mt Gox user's account was hacked and coins stolen, the result was that trust was lost in Bitcoin itself, plummeting the value and temporarily retarding its progress. It doesn't matter that "the hack had nothing to do with Bitcoin, only an exchange and a user on that exchange", the message heard by many was that the currency was not to be trusted. Its taken almost 2 years to build that trust back up in the eyes of members of the general public.

We are at a crucial time in the development of Bitcoin. User adoption is exploding and new opinions are being formed daily. As the value and distribution of Bitcoin increases, so does the incentive for evil and theft. An encrypted wallet, stored on a computer connected to the internet, is not safe from a rootkit or a keylogger deployed through bundled malware distributed through an exploited website. A patient and malicious actor can ultimately do much more to destroy Bitcoin than even a corrupt overreaching government, or a client based software bug can. If funds are stolen from a large enough percentage of the user base, we might as well pull the plug on this whole experiment, because the trust will never be repaired. Never.

The message we are sending to new Bitcoin users is that they should not trust web based wallets with more than a small percentage of their funds. That, coupled with the fact that most people do not have an extra computer that can be permanently left offline, means that right now there is NO good solution for MOST users. Paper wallets are great, but they present their own challenges. The armory team have done a wonderful and admirable job with their wallet, and for the more technical amongst us, it is a great solution. But as things stand today, we most go further. Bitcoin desperately needs a trusted bootable operating system that can serve as a better cold storage for a majority of its users. And needs this distribution to be extremely user friendly and robust. I don't personally have experience in creating a customized linux distribution, but I'd like to work with people who do, so that this need can be filled.

To the people placing their trust and wealth in Bitcoin, especially to the least technical amongst them, we owe them a committed effort to protect that trust. Their adoption benefits us, and Bitcoin's success ultimately depends on them.