The OP included the following in an update to his question:
I think I've found an answer: http://julmar.com/blog/mark/?p=300
The linked article contains the following summary in the opening paragraph:
In the previous post, I wrote about a Blend behavior for Windows Store apps to add a watermark to a TextBox. The next question I got was “Well, what about a PasswordBox?” PasswordBox is a bit tricker since it doesn’t allow text to be displayed in the clear – so our little trick of changing the Text property doesn’t work here. So, instead, let’s get a little hacky (or clever depending on how you look at it I suppose). We can use the same series of events (GotFocus/LostFocus/Loaded) but instead of changing text, let’s add a new TextBlock into the visual tree of the PasswordBox to display our watermark text.
Article: Adding a watermark to a PasswordBox in a Windows Store app
Blog: Wandering through the wilderness: Exploring the world of .NET 4.0, iOS, WPF, MVVM and other cool technologies
A similar question, Create WPF Watermark in Pure XAML, contains a link to a Code Project article, A WatermarkTextBox in 3 lines of XAML, which proposes a solution that should work equally well for a regular textbox or a password textbox:
<Grid Background="{StaticResource brushWatermarkBackground}">
<TextBlock Margin="5,2"
Text="Prompt..."
Foreground="{StaticResource brushForeground}"
Visibility="{Binding ElementName=txtUserEntry,
Path=Text.IsEmpty,
Converter={StaticResource
BooleanToVisibilityConverter}}" />
<TextBox Name="txtUserEntry"
Background="Transparent"
BorderBrush="{StaticResource brushBorder}" />
</Grid>