Sure, there are security problems with Steam if you give out your password to a 3rd party... There are security problems with EVERYTHING if you give out your account info...the security problem is you.
As for Steam only installing things within its own folder, there is a very good, and immediately apparent reason if you reformat or want to transfer your games. Copy the whole steam folder, paste it in the new location, launch Steam. It'll download the client and reinstall it for the new location, and all your games are already good to go. It makes it so easy, and I wish all programs were designed like that.
Edit: And to the one who says you don't need more than 10GB for music. Maybe you don't, but I am using 32.2GB in iTunes alone, not to mention all the multiple recordings of various pieces I have. It's about 3/4 AAC and 1/4 Apple Lossless.