So, potential concerns that occur to me. Note that I'm not coming out against it, just brainstorming issues to consider, I don't have particularly strong feelings about this, either way:
1) Lack of encryption. These passwords are sent in plain text. This is the main reason we've focused on HTTP proxies rather than socks ones in the first place, HTTP proxy code also applies to HTTPS proxies, so at least there's a secure option, even though we don't actually require it. Of course, we still do allow HTTP authentication over insecure channels, though with a prompt, we can at least make clear it will be sent in the clear in advance, though no idea how clear we currently make it.
2) Lack of configuration compatibility. When we get servers to connect to from PAC scripts or system configuration, if we support user/passwords in socks5, and other consumers of the same source of information do not, we'll behave differently. This does not apply when the configuration comes from a chrome-only source (e.g., group policy or extensions - yes, other browsers have adopted Chrome extension APIs, but they're not something where we've historically cared about cross-browser support). Also, on platforms where we let the OS run the PAC script (do we do this anywhere? I think we have an option to on Windows, at least), we'd potentially behave differently if the OS PAC script logic rejects such proxy URLs. A prompt-base approach would at least mean other socks5 consumers could successfully connect to a socks5 server, though if they get an auth challenge and don't have credentials, they won't be able to actually use the server.
3) User tracking. Unique passwords can be used to track individual users invisibly, particularly if the proxy configuration comes from a setting they may not be aware of. Of course, so can IP address in many cases, and so can unique proxy hostnames, so this seems likely not a huge issue. Showing a password prompt instead would fully address this.