When running the following from the command line in Windows XP (to another XP machine):
net use "\\IP\c$" MyPassword /user:TheUser
Is the password passed securely? If not, is there a secure way?
No, that will be seen by any packet sniffing tool out there. However, Net Use "\ip\c$\" should attempt to authenticate you as the current logged in user. if that does not work, (or you manually specify a different user with /user:theUser) a password prompt should pop up. That should be secure. Just click "remember this password"