I have a feeling this is an initial marketing feature for him.
You pull in users who value the convenience and ease of signup and once you reach critical mass the feature no longer yields the percentage of conversion that makes/breaks your venture.
The thing that Instapaper did was different. It allowed you to create an account that did not require authentication at all.
This new thing always requires authentication. It just doesn't use password authentication. You authenticate by verifying that you can use your e-mail account.
Interesting to see he is giving it another shot. It looks like the new implementation solves some of the problems brought up in that blog post.