It wasn't a rationally-considered position, it was a reaction against the strict hierarchy and batch processing mentality of the time. (Disclaimer: everything I know about this I learned from Stephen Levy's book Hackers.) The admins of these machines would flaunt their power over the users, and were very antagonistic toward the hackers who wanted to do "cool" stuff on the computers. So, keeping the machines security-free and not allowing passwords was actually necessary to promote the idea that anyone could run a program on the computer, because that was not the status quo.
The fear that someone would take control and abuse power in that way was not an unfounded one.
Right, perhaps it was a different time, but you need to limit the power of most users, especially in a school setting, or you cannot maintain the uptime of the system for everyone.
I know in our computer lab in high school, which was a series of x86 PCs donated by Novell and sharing files from a Netware file server (this was 1989-1990), we used to try to get superuser privileges on the Netware server. Once or twice, the 20 year old kid they hired as a sysadmin would walk away from his desk and forget to logout of his workstation, and we would give ourselves superuser privileges on the network. We would use this privilege to play "Snipes," one of the first network based multiplayer text shooter games. http://en.wikipedia.org/wiki/Snipes
This fun lasted for a few hours until the 20 year old sysadmin determined we had superuser privs that we shouldn't have and promptly revoked our rights.
ha ha - that's funny.
We had a very similar setup at the same time - the workstations were "diskless" and the only way to get software onto the machine was to write it (in Turbo Pascal). The workstations were 8086's while the file server was a 286, and the other server was a (then very expensive) 386.
But the admins had installed "NetWork Eye" - sort of like a VNC for text monitors. So one guy in the class wrote an assembler (in TP) then got a NetBios book and wrote some low-level NetBios stuff in assembler. That allowed us to NetWork-Eye the servers to get some other funky stuff done.
One thing we did was to login on all 50 workstations (except one), and run the network eye in a cascaded chain. Then sit back and watch the first person come in. They're log in (on all 50 monitors simultaneously) and everything they did would come up on all 50. Usually took a few minutes before they noticed...
The fear that someone would take control and abuse power in that way was not an unfounded one.