From arstechnica.com

For this roundup, I have chosen two optical scanners and two active capacitance devices. The optical scanners work by taking an image of your fingerprint, creating a template, and comparing the template to your finger each time you try to log in. These are the types of scanners I’ll try to fool. Microsoft’s optical scanner does not encrypt your fingerprint images, which can be stolen by potential hackers: a fact that a man named Mikko Kiviharju pointed out in an essay (PDF) last year. Mikko proved that it was possible to steal your templates from the Microsoft Fingerprint reader to gain access to your PC, which is probably why Microsoft encourages that you use it for convenience only. The other optical scanner, the DigitalPersona, does encrypt your template data.