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ANd the user passwords are safe, because XOOPS saves them as MD5 hash values instead of the actual passwords. MD5 is an encryption method, and it can't be decrypted, so not even when they know this, can the hackers find out the passwords of your users. Because the hosting provider failed to install their services like they should, PHP files weren't parsed and the mainfile.php (which holds the mySQL database password, you're correct about that) could be read. But with every server that has its services set up correctly and parses PHP files, this information is as safe as you can get it. So, XOOPS is as safe as any PHP application and the security breach is completely to be blamed on your hosting provider!
Herko