There has been some misinformation going around about an alleged security vulnerability in WordPress 2.9.2. A bunch of websites were recently compromised, and some people have tried to assign the blame to WordPress. The issue, however, comes from shared web hosts not taking the proper precautions to prevent users from accessing configuration files they shouldn’t have filesystem permissions for.
The exploit, in essence, involves capturing a WordPress blog’s database details from wp-config.php by having a hosting account on the same server, and building malicious script to open files outside of the zone that should be permissible. (Think along the lines of ../../other_users_files/wp-config.php.)
Some misinformed publications are claiming that it’s a WordPress vulnerability stemming from wp-config.php’s plain-text storage of database passwords…something that every database-using script has to do in order to function. Any reversible encryption scheme is just as easily reversible by someone who can access you filesystem, and the one-way hashing used for users’ passwords doesn’t work in this sort of situation. The file should never be directly accessibly by anyone other than the creator on a properly-configured server.
A new post on the WordPress development blog is attempting to clear-up the misunderstanding.