I consider hooking up to my neighbor’s internet connection using wireless LAN (splitting the bill, of course). I think I can block outsiders by securing the connection, but assuming the access point or whatever it is called is located in his apartment, can he then listen in on my data traffic?
Short answer: Yes, if he really wanted to and if you’re not using secure end-to-end communications. But would he really care enough to?
Long answer:
Maybe. There is no absolute yes or no answer; it depends on how technically savvy you are, how technically savvy he is, how much equipment each side has and how much effort you put into securing your communications vs how much effort he puts into decoding it.
If you use a weak wireless security protocol like WPA to “secure” your connection, you’re not actually getting very much protection from anyone. Anybody with the right equipment, not just him, can intercept what your computer is wirelessly broadcasting and then decode it with software made for the purpose.
If he has control over the access point, he can either reprogram it or connect it to another computer that he controls. Basically, if the connection to the ISP is in his house, he has control. Either way, yes, he can monitor everything that goes through and there may be no way for you to know about it until it’s too late.
However, if you use a secure protocol on top of the wireless connection – such as SSL or the “golden padlock” for websites; PGP or some other form of encrypted (not just signed, but actually encrypted) email – he will most likely not be able to decode your communications. He can still intercept the traffic, but because it’s all encrypted, it’ll just appear as gibberish.
But remember that there’s no absolute answer. These protocols are considered “secure enough” for most people in the present day – an average modern computer might need hundreds or thousands of years to decode them – but they might still be vulnerable to things like distributed cracking attempts, powerful government organizations, undiscovered flaws in the algorithms, or simply new technology. If your neighbor records everything you send now, he may not be able to read it right away… but 50 years later, he might be able to pull it from his archives and decode it with the computers of the time.
So, practically speaking… you’re most likely fine if you use some sort of secured channel on top of your Internet connection as long as your neighbor’s just an average joe. But if you have secrets so important that you can’t risk anyone ever knowing about them, well, don’t send them over the Internet. Don’t write them down. Don’t speak them, and if you can help it, don’t even think them. You never know what they’ll be able to dig out of old computer hard drives and human brains fifty years from now on 
Just wanted to add this:
Basically, the Internet is already inherently pretty insecure. Wireless just makes it that much easier for bored teenagers in your area to listen in.
If security and privacy are important to you, just pay for a dedicated landline connection to your own home. DSL is only like 20 bucks a month anyway. That’s the single easiest thing you can do to protect yourself. Oh, and don’t set up your own wireless router either unless you know how to secure it.
Aside from that, just try not to send anything over websites that aren’t marked as secure by your browser.
Sorry, that was an unclear statement. What I meant was: Don’t use a wireless router/access point at all if you can help it. If you must have one, make sure you know how to secure it yourself or find somebody who can.
Meh. My wireless connection is free to air… all comers are welcome to access the internet or share my MP3 library. Why should I really care?
[heads to Eleusis house to start downloading porn]
In general I agree with you, though. I wouldn’t mind sharing my connection as long as I don’t get squeezed-out by freeloaders and if there was a way to ensure nothing illegal was happening over my access point.
Unless there’s been some developments that I’m not aware of, I think that you meant WEP, not WPA. AFAIK, WPA hasn’t been broken. Of course, anybody with the WPA key would be able to listen in on your traffic, which would include the neighbour.
That’s good enough for me, I guess. Thank you.
You also want to make sure that your hard drive(s) are not “shared” since you will be on the same network with your neighbor, and he will have access to any shared drives or folders on your system.
Oops, I did mean WEP. However, if I remember correctly, WPA has also been deemed somewhat insecure in certain situations. But that’s just stuff I saw on the Net. I don’t know enough to be able to say anything more.
Fine; not everyone has stuff to hide. But the OP wanted privacy and security 