On Windows NT, of course, sensible security settings ought to prevent a user from adding the lowlevel packet driver into the network control panel, but if you've given your users administrator rights over their local machine, they might be able to install the software without your knowledge. Once running, Ethereal and similar applications have the potential to gather a great deal of information about the network, but only if the network is configured to let them. On the other hand, if yours is a switched network, then almost no traffic between Machines A and B is available for interception by Machine C, which is connected to another port on the switch. However, that information is not necessarily useful to a potential miscreant. In the experiment I carried out with my colleague, we could log passwords, but only those sent openly.
Passwords sent in the clear across the wire are an anachronism.
For obvious reasons, modern applications use a variety of algorithms to make sure that when the password travels across the wire, it does so in an encrypted form that is of no use to anyone who intercepts it. So we weren't able to gain any useful information about my colleague's password for our NT or Novell NetWare servers, for example. Nor were we able to discover my colleague's password for the Linux machine that runs as a Macintosh and Windows file server within our network. This machine is a member server of our NT domain using the Samba networking application, that makes Linux machines look like Windows servers and the authentication for that machine is done by our NT primary domain controller. At least that's nearly true, and we were happy until my colleague logged in to the Linux box directly using telnet to make some changes.