Google Docs – Monitoring Document Access

It's simply a matter of your required level of security. The goal of using google-docs... is not to distribute them via email... but rather distribute a link to the file in the cloud. You can add additional users to the documents as viewers only... and remove them at any time. Encrypting documents using the built-in password protection really isn't very secure either. (I have tools that can break the passwords in a few minutes)

Why do you need password security when the owner/admins of a document can pick & choose on-the-fly who can view & who can edit the document? Instead of a "global password" the users' accounts become their "password" to access the documents.

If you don't trust google with your documents... you probably shouldn't trust sending documents via email either.

There's Etherpad, which is a GPL collaboration verion of Google Docs. There are various example implementations which protect the privacy of your documents, although privacy isn't the issue.