The Mac OS X Lion 10.7.3 update turns on a system-wide debug log file which contains the login passwords of every user who has logged in since this update was applied. You are only vulnerable if you upgraded to Lion and kept your folders encrypted using FileVault 1.
If you use FileVault 2, you will not be affected by this vulnerability. So what does this mean for Mac users? Simply, if your Mac is stolen or someone gains physical access, they will have full access to your system including encrypted files.
The debug log file is only kept by default for several weeks, which means if you installed this update some three months ago, your login credentials will not exist. This vulnerability allows users to access encrypted files and every file that requires your credentials. It also allows someone to read your Time Machine security key, as your login password is stored in the backed-up log file in clear text. Hashes anyone?
Right now, I’d say this FileVault 1 vulnerability isn’t anything other than a failure in QA by Apple. Remember this vulnerability only affects users who upgraded to Lion. Also, it is not just an Apple problem – Microsoft has also experienced many security issues over the years, as we all know. Will Apple recompile the affected code sometime soon? Only they know the answer to this question.
Safe surfing folks!
Bootnote: FileVault 2, which uses full disk encryption, isn’t affected by this vulnerability.