Here's the reply I received:
Hi,
777 for a directory is ok, the biggest risk is having a settings file with 777 permissions as that means hackers could potentially read your database and other settings if they were motivated to do so. On a directory it should be fine. The 777 permission is very common for CMS's or BBS's etc as they need to write files to function. We have considered running PHP another way which changes that whole scenario, but it has it's own flaws. It's always a balance with web hosting as you have to allow everyone to see and use the site. Let me know if you have any questions.
Cheers,
Chad
So that puts Taproot Webhosting in the green as of 12NOV2009.