Keylogger or a False login page. Did you allow him to use your PC? If yes, he must have installed the keylogger.

Just a month back, one of my friends made a false myspace login page at 110mb.com and gave away the links to school children asking for "proxies" to get on to myspace at school, on Yahoo answers

He got a LOT of myspace passwords, but then he got scared of the law and stopped doing that before he could get into trouble.

What OS and what browser are you using?

He has video cameras

if you tell your browser to save your passwords, or if you tick "remember me" it can be decoded,

I second jbennet. If you have it stored somewhere (and typing that all the time would be god-awful), it can be found.

He should have changed all those passwords and reported those kids to their schools giving the accounts and passwords as evidence

He didn't want to get into trouble. What he did is called 'Password Phishing'.

most phishers never get caught despite doing a lot more nasty stuff than spanking some kids who want to do look at pr0n on school computers

I actually use about 4 different computers throughout the course of the day. My work one running Windows XP, My home one running vista, my laptop running OSX and Widnows XP. He has not had any physical access to my computer and i find it hard to believe that he would be able to get remote access to my computer to either install a keylogger or find the file that the encrypted file that it is saved in. I am also not dumb enough to type my password into any fake phishing pages.

The thing that really got me about this whole thing was that this Kid is a true moron. He doesn't go to school most of the time and usually he spends that extra time playing crappy computer games. Maybe i just underestimated him and he did manage to get a keylogger of some sort onto my computer.