[Octane]

Исправленный вариант:

CSS:

.field {
	position: relative;
}
.field label {
	position: absolute;
	top: 2px;
	left: 3px;
}
.field label.hidden {
	left: -9999px;
}

HTML:

<form action="">
	<fieldset>
		<div class="field">
			<label for="pwd" class="hidden">Enter password</label>
			<input id="pwd" type="password" />
		</div>
	</fieldset>
</form>

JаvaSсript:

var input = document.getElementById("pwd");
var label = input.parentNode.getElementsByTagName("label")[0];
var active = false;
function change() {
	label.className = input.value ? "hidden" : "";
}
input.onfocus = function () {
	active = true;
	label.className = "hidden";
};
input.onblur = function () {
	active = false;
	change();
};
(function () {
	if (!active) {
		change();
	}
	setTimeout(arguments.callee, 300);
}());

Пример