The best way I've found to hide this button is to create a custom userChrome.css file for Firefox. First, find your Firefox profile folder:
Vista/7: C:\Users\USERNAME\AppData\Roaming\Mozilla\Firefox\Profiles\SOMETHING.default
XP: C:\Documents and Settings\USERNAME\Application Data\Mozilla\Firefox\Profiles\SOMETHING.default
Mac OS X: /Users/USERNAME/Library/Mozilla/Firefox/Profiles/SOMETHING.default
Linux/Unix: /home/USERNAME/.mozilla/firefox/SOMETHING.default
(more info on finding this at a MozillaZine Knowledge Base article)
Then go into the "chrome" folder. In here make a plain text file called "userChrome.css". Put the following into this file:
#showPasswords, #security-view-password { display: none; }
This will hide the "Saved Passwords" button in the Firefox preferences. I've gone so far as to set this userChrome.css file to hidden to make it less obvious that this is how I've hidden that button.
Obviously this is not fool proof. With enough time and effort, someone could still get into your passwords for instance by changing or removing the userChrome.css file. Still, it beats just leaving the door wide open.