Yes, it did use to automatically filter out "password" in Profiler, I believe this was a feature added in maybe in SQL Server 2000 SP4 but I've seen a number of people wanting to switch this off as it was filtering out instances that they actually wanted to see. So whether MS have removed it/made that functionality switchable I'm not sure - can't seem to find anything on it for 2008 atm.
Edit: I can't find any information on this regarding 2008. Everything I can find relates to people wanting to do the opposite - in sql 2000/2005, switch that "feature" off, for which the solution has been to replace use of "password" parameter with an alternative name like "pwd".