Just so you know Microsoft has fixed this hole somewhat so I here.
With out getting too detailed
Don't want to give people any ideas...
the tools windows supplies them. Its as easy as adding an entry in your lmhosts file with the computers ipaddress and its name. if you got the ip of the machine you wish to connect to windows has a program that will pull the computers name for you built into the windows os...
Once this is done the one tring to get into your machine is then able to connect to the machine they are tring to access through network neighborhood.
best way to protect yourself is to set up some sort of firewall to protect your machine blackice and atguard are good examples of excelent software firewalls you can install on your computer. both i belive are available on download.com
also never share folders with out setting passwords. that way if someone were to get to you this way they would still need a password. If you are sharing files and folders with no password protection the intruder has full reign over those files.