FIX ACTION:
And the fix is to update your blog. This will fix the issue. Make sure you change your password if you actually put your information in that “serve at Magic” message box. Although updating the the wordpress blog definitely fixes the issue, you may have to reload your pluggins too because they may also have some infect code. Doing further research on this matter.
From RocketWood:
We noticed that the code injected into the files was run through an eval and a decode so we decoded the string and found this php code:
I was having uploading images on one of my WordPress 2.7 & 2.8 blogs. It gave me the following error:
Unable to create directory /home/username/server/wp-content/uploads/20XX/MM/ Is it parent directory writable by the server?
Store uploads in this folder
Full URL path to files
Most probably you will see
/home/.boogee/XXXXX/XXXXXXX/wp-content/uploads
in the first field.
Step 3: Edit that to just
wp-contents/uploads
Some people were suggesting that you solve the problem my making the folders permissions 777, meaning anyone can do anything to that particular folder. As a security guy, I knew this was a bad idea (and it also did work for me 🙂 ). I kept searching and ran into that solution.
Worked like a charm! thanks cyriac for putting solution on the blog.