People don't remember MTGox?
Yes, that exchange in which people lost a lot of money
Even if you don't have a mtgox type situation, have your coins stored on an exchange opens you up to a lot of risks. One main risk is that your account at the exchange gets hacked and your coins withdraw from your account. You would have little to no way of proving your account got hacked and would have no way of recovering the money.
It would be very helpful to have something like FDIC or SIPC backing for exchange accounts so you could be assured that (under most normal circumstances) you won't lose your money if your account is hacked. Of course that would require additional regulation and expense, but that's the trade-off.
