Is it likely that someone may actually try to "sniff the network traffic"
That is an excellent question. It's an excellent question because most "experts" answer the question wrong. They picture some hacker, sitting in a far off location, somehow floating around the Internet, wasting his time reading other people's Internet traffic as it flows from Chicago to New York - and they figure that that scenario would be so useless that nobody would ever do it. And they'd be right, nobody would ever do that.
But that's not how sniffing really happens in the real world. It happens one of two ways: First of all, an ISP in Chicago might hire some kid for $10/hour to intern at their ISP - he installs a sniffer that is intelligent enough to look for certain words like "username" or "password" or 16 digit numbers near numbers in the form: mm/yy.
The other way sniffing happens is from your IT department. You get a nice job, the company tells you they have a good Internet connection and they'll maintain your computer for you. And you surf ESPN at lunch and everyone's happy. Unfortunately, that IT department can watch everything you send - minus the SSL encrypted traffic of course. And if you think they don't watch, just try surfing some porn and see how fast they visit your desk. They have automated monitors that check traffic and alert them. They can easily put in monitors for phrases like "username" near the word "password".
So yes, it's 1000 times more common than you think. Learn to program as if you were protecting extremely important stuff, that way you'll get in good habits. If you learn bad habits, then you will use them on the important stuff too. And that'll get you sued.
Here's my best two pieces of advice:
First: Assume that the guy sitting next to you is going to get fired tomorrow. He will have seen (and may even have a copy of) all your PHP scripts. Write the code in such a way that it doesn't matter if he can see exactly how your wrote your PHP scripts.
Second: Assume that hackers are willing to spend 80 hours on cracking your site. Don't write in such a way that you are only protecting yourself against the average idiot. Don't say, "Well, this is confusing enough so that nobody could figure this out in forty five minutes - it'll protect against 99.99% of the public". You'll be right, 9999 out of 10,000 people will be kept out - but that remaining one person will cause you $400,000 in lost revenues.