KTelnet2 is able to store passwords in memory and harddisk. Both is a basic security problem. Stored passwords may be read by unauthorized people. Either from disk or in a memory dump of your computer. As Unix/Linux (or how R.S. would say GNU/Linux) is a multiuser operating system, there are basic security considerations undertaken:
Your configuration files are by default only readable for you (and any other who has root privileges).
Your application can only be attached with a debugger by you and again by any other who has root privileges.
Core dumps should only be readable by yourself (and again root) and nobody else. Hopefully there are no core dumps at all.
As you can see here, root is a very special account and you can not do anything to protect your data from root. KTelnet2 therefore does not store any passwords in plain text if you enter a master password (remember: IF YOU ENTER A MASTER PASSWORD). The passwords are encrypted with a blowfish algorithm and stored in the sessions configuration file (ktelnet2.sessions). The algorithm can be altered at compile time but at the moment (05.01.2001) there is no other crypto routine available. I myself beleave that the password storing is secure, but I am no expert in this area, so I can and will not give you any guarantee.
The author of the program will not be responsible for any privacy loss which happens by the use of ktelnet and with the password storing mechanism. You use this AT YOUR OWN RISK.
Password storage is only available with plugins, there is no way to store a password for an ordinary telnet, rlogin or ssh session.
With version 0.43 of KTelnet2 I introduced the possibility to leave the password fields empty in the configuration dialog and login via plugin connections though. You will be asked for the password of your host and the password of your proxy host if the fields are empty and the passwords are needed. The passwords are hold in memory as long as the program is running, but they are not stored on the hard disk afterwards. You can turn this option on and off for each single session.