You are both kind of right: http://en.wikipedia.org/wiki/Personal_identification_number#...

If enough people never bother to change their PIN, it might still be worth it.

Yeah, but then you have to make the lookup anyway, to check if they did change it. You might as well just authenticate. Unless the original PIN always works, which is not secure.

I think the changed PIN is stored on your card as an offset. When you enter your pin, both the offset and the code you entered are transmitted, so they always validate agains the original, non changed, PIN.