Phishing error

[DisturbedGoddess]

I just recently got an email from google or some thing. Saying I had a Phishing site hosted on my site.

Dear site owner or webmaster of disturbedzone.com,

We recently discovered that some pages on your site look like a possible phishing attack, in which users are encouraged to give up sensitive information such as login credentials or banking information. We have removed the suspicious URLs from Google.com search results and have begun showing a warning page to users who visit these URLs in certain browsers that receive anti-phishing data from Google.

I removed the files off my site of course just like the email told me to.

The email also said.

Although some sites intentionally host such attacks, in many cases the webmaster is unaware because:
1) the site was compromised
2) the site doesn't monitor for malicious user-contributed content

How could my site be compromised? These files were in the smiley folder on my forums. Do i need to change the permissions of my folders so this won't happen again? What causes these files to be put on my site? And how do i prevent it from happening again? I've gotten this once before and that time i contacted my server hoster and they said they couldn't do much. What all do i need to do to keep this from happening? How do these files even get on my site in the first place?

I posted an image of what the files where. In case it helps.

[Sir Osis of Liver]

Your site has been hacked (twice).  Move to a host with better security.

[DisturbedGoddess]

Your site has been hacked (twice).  Move to a host with better security.

This hoster IS secure, Its more secure then the old host I was on. I've already had to change servers like a few times already. I can't change any more, well I dont want to its a pain. And I've already settled with the hoster i have now where every thing is unlimited. Theres got to be a way to fix it so this wont happen. I dont want to change AGAIN

[DisturbedGoddess]

Would any of this be caused by an outdated software? As i have 1.1.12 instead of 1.1.14 or what ever the newer one is now. Would that be causing the issue?

[Sir Osis of Liver]

Couldn't hurt to upgrade, at least to .14, preferably to 2.0.  All of the upgrades include security fixes that address problems with earlier versions.