If i use restful_authentication in my ruby on rails app are passwords transfered between the broswer and the server in paintext? And if so how worried should I be about it?
Well, you need to be worried if you are not hosting it over HTTPS... because if it is straight HTTP, then yes it is being passed in plaintext.
I don't know Rails specifically, but I'm pretty sure it has nothing to do with whether you host it via HTTP or HTTPS.
Edit: I found this link which apparently provides an example Rails app over HTTPS.
Further Edit: Here is another link discussing HTTPS with Rails.
Authentication with plain text can be done with CHAP style protocols. Is that possible over HTTP?
I'm asking, because I think that it would need some state on the server to foil replay-attacks - state on the server is something to be eliminated with RESTful architectures, right?
If you are concerned about the privacy of passwords (and you should be), you will also want to add this line to your ApplicationController:
filter_parameter_logging :password
Otherwise the passwords will end up in plain text in your log files.