Blockchain.info uses zero knowledge authentication, as do wuala, spideroak, clipperz, etc.
As does #bitcoin-otc.
The general public issue is making the signing easier. I think people could grasp having a key-pair. They may not be able to stop themselves losing it. But they are too lazy to bother with a cumbersome gpg signing process to login on a web site.
On Linux/Ubuntu we have a nice password/key manager (Seahorse) but even it doesn't integrate with Firefox and provide a one-step way to sign a challenge. Is there an add-on? There ought to be, as a first step that could prove usefulness for later integrating it into the browser.
Or is using client certificates a secure and easier way for people to authenticate for login?
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BRUNO = Bitcoin's Researcher, Umpire and Nasty One.