Until now. if you were building a .NET client application for Live Framework you had to ask the use for his username and password and use that to log in on his behalf. In general its bad form to need to expose the credentials to anyone except the authentication provider.
Rong Cao has posted an announcement on the forum which demonstrates how to use the Windows Live ID Client 1.0 SDK properly to display to the user a recognizable interface in which to provide his credentials and use the resulting authentication token you receive to log in to the Live Framework.
The section of my brain that worries about security problems is relaxed and all warm and tingly!