It's still commonly recommended way of hashing passwords, even if its insecurity had been proven in 1996:
Therefore we suggest that in the future MD5 should no longer be implemented in applications like signa- ture schemes, where a collision-resistant hash func- tion is required. According to our present knowl- edge, the best recommendations for alternatives to MD5 are SHA-1 and RIPEMD-160.
(The Status of MD5 After a Recent Attack, CryptoBytes, RSA Laboratories, VOLUME 2, NUMBER 2 — SUMMER 1996)
Even after this study, and all upcoming papers about it's defects, it has been recommended as password hashing function in web applications, ever since.
It is even used in some Certification Authorities digital signature (according to http://rmhrisk.wpengine.com/?p=60 )
What is the reason, why this message digest algorithm is not prohibited yet in meaning of security purposes?
Links, took me few minutes to find those