I have file extension shown for a couple of reasons, it makes file management easier, you can easily see what a files extension is and therefore where to put it etc..
also i think it adds a bit of security, as a virus program could easily use the microsoft word document icon as its program icon and therefore look like a DOC file but when you open it its actually an EXE and youve just destroyed your computer.
This was the way, i think, that an old email virus got around, it pretended to be a text file or something. Not sure of the details though.
And it really makes renaming files easier, you can easily change a files type, for example trying to upload an image in an unacceptable filetype you can usually just change the extension and the website will accept it. Or when sending EXE's over msn you can change the file extension to .TXT and get your friend to change it back again Saves the effort of zipping it all.
Though i agree if youre just renaming a files name, not its extension, it can be a bit problematic when you dont enter/forget the original filetype.
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