How secure is Windows Authentication on IIS7?

The Windows Authentication feature seems really convenient. When I enable it, the login window pops up and asks for my Windows user name and password, which allows me to impersonate my .NET application as my Windows account (I think?). I am not forced to use IE because this worked for Firefox too.

I am wondering how secure putting in my Windows credentials like this is. I understand this can only work for intranet (I think?), but do I have to use this in conjunction with an SSL certificate? Can someone "sniff" out my credentials from my internal network like this?

Thanks for any help.