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Anyway, after looking at my friends computer, he started talking about how he thought it might be infected with a trojan and a packet sniffer. He then started telling me about how, since we were connected to a hub, everything I and everyone else connected to the hub do is also sent to the infected computer. Then he stared telling us how the packets it picked up were stored, and how, if my other friend found them, could have access to all of our browsing history, passwords, etc.
Well if your friend (is his name Ankit Fadia? :p ) can look at this other guy's computer, he can look at yours, which means that he can install anything he likes on it effectively. No physical security = no security IMO.