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  • The Windows XP PC in question has the usual anti-virus and firewall precautions.
  • It has the most recent Windows Updates and anti-virus updates installed.
  • Flash is used only to play videos (located on the machine's hard disk) which are known to be safe.
  • The PC is not used to browse the web at all - the only browser, IE8, is never opened.
  • The Adobe Flash player install is about 3 months old.

I suspect any unpatched software could be a potential threat, but would be interested to know how bad the above situation is (relative to a fully-patched system).

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Primarily flash vulnerabilities are exposed when the player executes a malicious file. Assuming that the flash files played from the local machine are from a "trusted" source and that the flash player is never run outside of that context (ie within a browser), then there doesn't sound like much of a risk.

That said, if the machine pulls information from the Internet in other means (eg, E-Mail) then I guess it's possible that the browser engine could be used there and following a link from e-mail could cause the flash player to be used...