This data isn't secret. Some is public record, like where I was born. Other things, like my favorite pet's name, are not pieces of data one normally protects. It's much easier to amass a collection of unprotected facts, and use those to pose as someone, than to compromise an actual password, an encryption scheme, etc. Moreover, most of these questions are used by many sites for the same purpose. So if I know someone's nickname, street address growing up, city of birth, mother's maiden name -- all readily available in the U.S. -- I'm that person on a lot of websites.
Personally, I use Mr. Schneier's approach of typing in random gibberish, thereby protecting myself at the cost of some convenience if I do lose my password.
While I'm on the topic -- and I'm sure someone has written authoritatively on it before, but nevertheless ... -- I am surprised how rarely people realize that their unprotected email account is the weakest link for all of their "secure" online activity.
Many sites (including Skip) email a new password to a user upon request. The gmail account that they stay logged in to, or log in to from a questionable computer in a hotel lobby, thinking, "My life is so boring, hey if someone wants to read my gmail, let them" ... or a business email account accessed on the road in the clear ... these become the easy way to get passwords.
There's nothing inherently wrong about using email to do a password reset (reset -- that means only a temporary password is sent via email; the user must then change it to a more protected one). Folks just need to realize that the email account -- if it is registered with sites that send passwords -- needs to be protected. Complex password, routine changes, all that...
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