Just code the app so it's an extension. Several items in the extensions folder are apps, and usually are not visible unless in use.
This is part of how pre-OS X works, an app may lock up the OS, requiring reboot. This has nothing to do with a password, unfortunately OS 9 and older is a little loose with memory control, compared to OS X. Just run a little low on memory, and the app will lock right up, along with the system.
Ahhh, this isn't what you are asking about!
There should be something in versiontracker. Do a search for kiosk software. There's probably other categories of software that do this, but I can't think right now.