WTF happened?

Well, there is loads to read about in all Joomla! Forums: http://forum.joomla.org/index.php/board,267.0.html

Or just do a search: http://forum.joomla.org/index.php?action=search2&search=hacked

All he did is overwriting my configuration.php. I have restored the file from backup, set the chmod to 444 (owner, group and others to read only) and upgraded Joomla! from 1.0.7 to 1.0.10.

This is a big advice I can give to everybody. And always make sure to keep your third party components up to date. Check the Joomla! Security board (first link above) to keep yourself updated.

Was your config.php 777 or 775 or 757?

I'll have to check and see what ours is set to.