there are two security modes, full and command. if you set it to full, then any use of the firmware prompt requires a password. if you set it to command, then people can boot, but only the default boot device. you cannot specify a boot device without a password when security-mode is command.
however, i think you can still boot from cd by holding c. so i suggest turning auto-boot to false, then if a user wants to reboot, he can type the boot command, but cannot specify, for example, the cdrom drive for booting. horrible that the user has to see this command line? perhaps.
if you forget your OF password, you are SOL. with sun machines, they tell you you have to send it in to get the nvram reset, but you can purchase new nvram chips. with apple i think you d have a hard time finding such a chip, and i don t know whether they will let you send it in to get fixed.
zapping the pram does not reset the password, although it might change auto-boot back to true, at which point holding c or t for target mode might let the wily cs student get full access to your disk. i will try it soon. my g4 has no cdrom drive presently, but i ll let you know.
as far as this method being horrible? it s about the same horribleness as password protecting your BIOS with a PC, and sun, who has been making high end secure servers for 15 years, uses the exact same open firmware forth monitor that apple uses. i guess the only difference with apple is the whole 'hold down c' or 'hold down t' thing. if we could disable that feature, then we could set the OF to auto-boot, lock the OSX startup disk control panel, password protect the BIOS and set security-mode to command, and our system would be safe.