How can this be possible?

Steve knows everybody's password....

 

It probably got embedded in the disc you made.

 

What model of Mac did this happen on?

 

Packet injection hack. Hacking your own network is legal! Try it with the neighbours WiFi! Just kidding. I doubt it would know your password, it probably asks, or it doesn't use the internet for anything.

 

try do re-produce!

 

It'll ask. Type it in.

 

I think the same thing happened here but I didn't care too much until now.

 

It doesn't use your wi-fi. I believe the text above the progress bar says "Downloading blah blah blah..." It isn't downloading anything, it's merely copying setup files from the disk to your hard drive.

I saw this as well and thought the same. To prove it wasn't accessing my connection I turned airport off and Lion still installs. An Apple coder just assumed Lion would always be downloaded prior to the install.

 

Is there a padlock icon next to the connection?

Trust me... Lion has not mysteriously hacked into your router. The installer is written to assume a download and a wi-fi password for the selected location would be requested later *if* you were installing Lion the way Apple intended. (i.e. by downloading it).

But... you have the full OS on a disk so the installer doesn't need to download anything.