DHCP is built directly on UDP and IP which are as yet inherently insecure. Furthermore, DHCP is generally intended to make maintenance of remote and/or diskless hosts easier. While perhaps not impossible, configuring such hosts with passwords or keys may be difficult and inconvenient. Therefore, DHCP in its current form is quite insecure.
Unauthorized DHCP servers may be easily set up. Such servers can then send false and potentially disruptive information to clients such as incorrect or duplicate IP addresses, incorrect routing information (including spoof routers, etc.), incorrect domain nameserver addresses (such as spoof nameservers), and so on. Clearly, once this seed information is in place, an attacker can further compromise affected systems.
Malicious DHCP clients could masquerade as legitimate clients and retrieve information intended for those legitimate clients. Where dynamic allocation of resources is used, a malicious client could claim all resources for itself, thereby denying resources to legitimate clients.