Put yourself in a hiring manager's position: you have two well-qualified job candidates. One of them says he's worked on this project and that project, but since all his work has been on proprietary software you can't see any of his actual code without asking him to do a test project for you.
The other candidate, besides his day job, has been working on an open source project, and you can see his work and judge it for yourself. Not only that, you can look at the project's developer email list and IRC channel logs and see how the candidate interacts with other developers.
Naturally, you are going to give extra cred to the developer whose work is out there in the open for all -- including you -- to judge.
In a recent blog entry, programmer/author John Graham-Cumming mentioned a job interview he went through back when he was still actively developing PopFile. During the interview, he said, "...no one asked about my code."
At the end of the interview he found out why. The interviewer said, "We've read your code."
In a tight job market, any leg up is a good thing. And open source development is more often than not a good thing even if your purpose in doing it isn't to flesh out your resume or help you find a better job.
The one problem with putting all your code out there for everyone to see is that if it isn't up to par, it may hurt your reputation, not help it.
For example, the recent release of the "Facebook alternative" Diaspora code has been greeted with almost universal dismay at the number of security holes it has.
Since Diaspora started as a student project, and this is a pre-Alpha release, no sane person expects it to be bug-free. But at the same time, if you are one of the people involved in producing Diaspora, you might not want to boast about your involvement in it on your resume (or even in Slashdot comments) quite yet.
Don't think smart development managers don't Google you before they call you in for an interview. They do. So you need to make sure that when they do, not only do they find open source code you've written, but that the good code they see associated with your name outweighs the bad -- or better yet, that there is <i>only</i> good code out there for them to see under your name.