The following is taken from the Gnome Display Manager Reference Manual:
GDM also supports the X Display Manager Protocol (XDMCP) for managing remote displays. GDM listens to UDP port 177 and will respond to QUERY and BROADCAST_QUERY requests by sending a WILLING packet to the originator. GDM can also be configured to honor INDIRECT queries and present a host chooser to the remote display. GDM will remember the user's choice and forward subsequent requests to the chosen manager. GDM only supports the MIT-MAGIC-COOKIE-1 authentication system. Little is gained from the other schemes, and no effort has been made to implement them so far. Since it is fairly easy to do denial of service attacks on the XDMCP service, GDM incorporates a few features to guard against attacks. Please read the XDMCP reference section below for more information.
Even though GDM tries to outsmart potential attackers, it is still advised that you block UDP port 177 on your firewall unless you really need it. GDM guards against DoS attacks, but the X protocol is still inherently insecure and should only be used in controlled environments. Even though your display is protected by cookies the XEvents and thus the keystrokes typed when entering passwords will still go over the wire in clear text. It is trivial to capture these. You should also be aware that cookies, if placed on an NFS mounted directory, are prone to eavesdropping too.