Are you guys running your mysql client as root? (not the server, the client). Because if the client is calling the read-in, then obviously it will have access to everything.
Run "mysql" as an end user without root acesss, and he probably won't have root access.
I was not able to duplicate the issue when running as a non-root user.
I was able to duplciate it when running as root.
Obviously, this means .. don't give your Users root ssh access if you don't want them to read in misc. files through obfuscated means.... basically, if they have root in the first place, they can read whatever they want.
This does not appear to be any security issue.
If they have root, they have root and the mysql client mysql will act accordingly.
For all normal cases (you guys), your users won't have root access, thus this is a non issue.
The mysqld server runs as the "mysql" user, thus has no way of reading anything like the mysql.conf.
John