Question: I'm working on a Java password manager and I currently have all of the user's data, after being decrypted from a file, sitting around in memory at all times and stored plainly as a String for displaying in the UI etc.

Is this a security risk in any way? I'm particularly concerned with someone "dumping" or reading the computer's memory in some way and finding a user's naked data.

I've considered keeping all sensitive pieces of data (the passwords) encrypted and only decrypting each piece as needed and destroying thereafter... but I'd rather not go through and change a lot of code on a superstition.

Answer: 
If your adversary has the ability to run arbitrary code on your target machine (with the debug privileges required to dump a process image), you are all sorts of screwed.

If your adversary has the ability to read memory at a distance accurately (ie. [TEMPEST](http://en.wikipedia.org/wiki/TEMPEST)), you are all sorts of screwed.

Protect the data in transit and in storage (on the wire and on the disk), but don't worry\* about data in memory.

\*Ok, there are classes of programs that DO need to worry. 99.99% of all applications don't, I'm betting yours doesn't.
Yes it certainly is, especially since you quite trivially can debug an application. Most code dealing with encryption and unsafe data use char arrays instead of strings. By using char arrays, you can overwrite the memory with sensitive details, limiting the lifetime of the sensitive data.