This is mostly a warning for packet sniffers more then anything else. If you have a trojan or key logger, you are pretty much screwed already. As soon as you hit that send button, before it even gives you the pop up window, a trojan/key logger on your machine has already grabbed the password and is wainting to send it off to whoever controls it. The window should only pop up if you are sending a plaintext (ie, not using ssl) over the internet, so that you think about what you are doing ahead of time.

Along with what IchNiSan said:
6> Someone has compromise any of the routers between your machine and yahoo.com. (same as 3, but router compromised)

7> Some admin between your machine and yahoo has intentionally set up a sniffer on a router (ie IS at company may set up to watch for web traffice from the office).