When someone can read your passwords of your disk, the point of encryption is already moot.
No, encrypting the password database with a master password that's not saved means it can no longer be read directly, significantly raising the bar for capturing passwords.
A) FTP is typically plain text anyway so you could just wireshark it
Depending on user privileges this may not be possible, and would only gather one at a time.
B) you can replace the binaries and have them emailed any time they are entered
Depending on user privileges this may not be possible.
C) you can install a keylogger
See B
This "user" could've just as easy encrypted his entire hard drive or user directory. Still wouldn't have helped though.
No shit that wouldn't have helped, as long as the drive's mounted the file is plaintext as far as the malware is concerned.
I would seriously reconsider taking a "secure" anything from anyone that can't bother to think their own security through.
Clearly you're not capable of thinking through security yourself.
Let's say I'm shithoused and inadvertently run some kind of malware that wants to steal my FTP passwords. I realize what I've done almost immediately after and shut down to restore from backups. If they're stored unencrypted, that malware could have already sent my full stored password list to wherever. If they're encrypted with a master password, the malware gets absolutely nothing. Even if I don't catch it immediately the malware still can't get it no matter what until I actually go to use those passwords.
If you can't see how huge of a difference that is I don't know what to say.