Yeah, but a forgotten password is everybody's own fault,
It really doesn't make any difference whose fault it is. If anything, having it be your fault makes it worse.
while the average BTC user can't be expected to only keep his wallet on his walled-off linux machine with only carrier pigeon connectivity.
Of course not. Since they can't be expected to secure their machine, they shouldn't be holding BitCoin keys on it. The best way to use a credit card is not to become a bank or a merchant.
I, for one, would welcome wallet encryption, even if it's not 100% secure and perfect. I mean, what is 100% secure?
Propose a scheme. I don't know how to do it so that the upside exceeds the downside. If you do, please share.