I think it was for testing the security of each employee's password. So if he couldn't crack them, there was minimal risk of somebody else doing it and if they did, using them for malicious purposes.
Free addresses like yahoo may expire especially when they are not used often.
Worse, the handle could even be claimed by someone else.
Your domain names are only as secure as the admin E-mail address.
I have an extra Yahoo address that I have not opened in over a year. Just checked it - opened right up, no problem at all.
Hotmail/Live has an annoying requirement that you have to log in every 30 days. In practice it takes longer than that but eventually they will dump all your mail and hold your ID. Never heard of them letting someone else get it, but would not put it past MS.
Gmail was hacked where someone could get copies of all your mail sent to them. So they could request Passwords and read the responses. That leak has been plugged but others are, of course, possible - both in free services and in private software. I agree with Zan - you gotta keep watching.
To go along with #1 and #2, make sure your e-mail address has a secure password as well. Domains can be stolen by people gaining access to your e-mail and requesting passwords, thus breaking into your account at the registrar.
I think a very basic one, which I am about to preach but don't particularly practice, is don't use the same password for everything.
I read on another forum that a scammer hacked a database and used the same password from the database to access the guy's email account. The scammer then accessed his registrar and sold all the domains.