AJAX Chat is prone to both a directory-traversal vulnerability and a cross-site scripting vulnerability because it fails to properly sanitize user-supplied input.
An attacker can exploit the directory-traversal issue to retrieve arbitrary files from the vulnerable system in the context of the affected application. Information obtained may aid in further attacks.
The attacker may also leverage the cross-site scripting issue to execute arbitrary script code in the browser of an unsuspecting user in the context of the affected site. This may help the attacker steal cookie-based authentication credentials and launch other attacks.
These issues affect AJAX Chat 0.1; other versions may also be vulnerable.