Ok, I've read http://forums.asp.net/1/388929/ShowPost.aspx#388929 and looked over PortalSecurity's InputFilter method.
What I don't understand is I don't see this method used very often in the DNN source. As a matter of fact, I don't think many modules use this method. I see the InputFilter method called by places where the public can enter data (like signin and user registration), but not used to validate every user input.
Do most DNN modules assume that users with Edit permission are trusted? That may be a dangerously naïve assumption.
I checked the Forum Module since that is a module that expects input from many users (who may not all be trusted). Forum Module calls InputFilter for the body of the message, but not the Subject. So a subject like
<SCRIPT>alert('hello');</SCRIPT>
can be entered with disturbing results.