3) Network (most likely): If your friend's network is wireless and not protected, you can't imagine how easy it is for someone to get such information (granted he knows what he's doing). Having an unprotected wireless network means that someone can connect to it, then sniff the data that are transmitted in it, and because its not protected, those data are not encrypted.
Sort of. Sometimes the communication between your web browser and
the web server is encrypted by the browser itself. Sniffing that traffic
won't reveal much.
The hotmail login page, for example, has a "Use advanced security" option
that takes you to a login page where encryption is used. I can't see
a similar option for facebook, though.