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MD5 is not secure in itself because it is partially broken (collisions) and is too small of a digest anyway. If one doesn't want to use a proper password derivation function à la bcrypt, scrypt or PBKDF2 you should at least use SHA-256 for new designs (and have a plan to migrate to SHA-3 when it will be out, so be sure to store the scheme you used to hash the password with the result, so both scheme can coexist as you use the new hashing procedure when people change passwords).
If you intend to sell your program using MD5 in any capacity can be a show stopper for most government sales (e.g. in the US algorithms used must be FIPS 140-2 approved and many other countries got the same kind of requirements).
The reason why random password salt is recommended for hashing password, so that an attacker who knows the password hash can't compare it to rainbow table of pre-calculated hashed from dictionary.
If you're using password as salt, attacker can pre-calculate hashes of $word.md5($word) first from their dictionary