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How isn't such a setup insecure?

Using current standard consumer technology, it would have some security issues.

That's why they say:

We're working with a coalition of volunteer engineers to build technologies that will let users open their wireless networks without compromising their security or sacrificing bandwidth.

There are a variety of technological solutions possible, many of which could be implemented in firmware (see OpenWRT). I'd guess if we dig deeper on their website, we might get to their tech plans; I am not familiar with them specifically.

Although, honestly, if you're counting on nobody being able to sniff your traffic in transit for security, you don't have enough security anyway. But still, yeah, I wouldn't want to make it that easy.

per-device (session?) keys.

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