Here’s the short version: You jailbreak your iPhone and SSH access is opened on it. If you don’t change your default root password, a hacker can log into your iPhone (or iPod touch) and gain full control very easily. A Dutch hacker takes this a bit further by throwing up an SMS popup after breaking into unsecured iPhones and asking €5 for instructions on how to secure the iPhone. We’ll save you €5 — do a restore.
The long version is at Ars.
If you want to stay clear of this kind of nonsense, change your password after jailbreaking, or obviously, don’t jailbreak.