This week's book giveaway is in the OCPJP forum. We're giving away four copies of OCA/OCP Java SE 7 Programmer I & II Study Guide and have Kathy Sierra & Bert Bates on-line! See this thread for details.
Java doesn't offer that kind of control over the console interface, unfortunately. You're better off throwing up a GUI window; then it's easy to use, for example, javax.swing.JPasswordField. I don't think the PasswordCallback suggestion will help you.