Macromedia has released an updated version of Flash Player (7,0,19,0) that stores local data in a way that prevents a malicious user from gaining access to that data (except through the Flash player.) This version can be downloaded from the Macromedia Player Download Center.
Update to Flash Player Addressing Local Shared Object Security (Macromedia Security Bulletin MPSB03-08)
Macromedia Flash Player Predictable Data Location Weakness (Secunia Advisory, December 17, 2003)