True, I was thinking about this last night and the best solution would seem to be built in PIN like the debit cards used in Europe and Canada.
"Chip debit cards encrypt all information stored on them, increasing your safety when completing a transaction."
This will prevent merchant from having ALL your info just on the magstripe.
I still don't understand how this will work. The merchant can't move the bitcoins from your address unless they have your unencrypted private key. Once they have your unencrypted private key, there is nothing that prevents them from saving it and re-using it in the future.
It seems that what is needed is a card that has a processor, display, and input interface built into it, the card would be placed with some sort of electrical contacts interfacing with the merchant's terminal. The terminal would request the bitcoin addresses known by the card. The terminal would then search the blockchain for unspent outputs associated with those addresses. The terminal would build an unsigned transaction and submit the transaction to the card requesting a signature. The card would then display the transaction amount on its built in display. The card owner would verify that the displayed amount was correct, and would use the card's built in input interface to indicate acceptance. The card would reply to the terminal with a signed transaction. The terminal would then broadcast the transaction to the bitcoin network.