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What is the likelihood of something like this happening on a stand alone Linux System?
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It is possible, but more difficult than in Windows, where two of your steps are not needed.
Notes:
1: In general, the root user doesn't access the same files as a regular user.
2: People *should* enter immediately into paranoid mode whenever they enter root. Doesn't mean they will, but then people who don't would have been infected already on Windows.
3: since everything is in text files and directories, it is difficult to hide a virus. Due to logging, it is even harder. A virus would need to do actual infecting of a binary, something that is not common in the Outlook worm world.
4: many Linux systems are in companies, where the user is not allowed root access.
In conclusion, while Linux viruses are possible, the system they are attacking is inherently more resistant, which would likely decrease infections by an order of magnitude (aside from the marketshare issue).