One more cracked site - you should upgrade your moodle 1.7 (to moodle 1.9.4+ if possible) and read the security documentation. Start for example from
http://docs.moodle.org/en/Security and http://docs.moodle.org/en/Security_overview
http://moodle.org/mod/forum/discuss.php?d=115416
http://moodle.org/mod/forum/discuss.php?d=114943