My memory is quite rusty because I haven’t messed with Skype in a long time so there may be some innacuracies, that said:
Pre-MS Skype is (over)engineered to be as secure as possible (by 2000s standards), to the point that it makes the lives of reverse engineers hell. Most traffic (other than calls to PSTN) is encrypted.
Every single network packet is RC4 encrypted (though more for the purpose of obfuscation than encryption), and that’s before any further encrypition takes place. The first 14 bytes are XOR-ed with a custom RC4 stream, which IIRC is randomized based on a combination of the parties’ public IP addresses, the packet’s identifiier etc.
Then once the authentication process starts, temporary session keys are negitatioed using 384-bit Diffie-Hellman.
The Skype server hosts an RSA private key (which is hard-coded and cannot be changed in obfuscated clients, of which most official ones are, but there are now methods to deobfuscate them) and for each individual user, public keys that are certified with 1536-2048 bit RSA certs are created. The login server sends a challenge to verify the client and identity of the user utilizing these keys. Passwords also aren’t sent in plaintext, your username and password are concentrated and hashed together usinig a highly modified version of MD5, on top of DH.
The actual response (plus most traffic from here on, including your messages/calls) uses AES256.
In just the authenctication process, you are using 5 different cryptographic algorithims/protocols.
As far as the login server goes, MSNP/Post MS Skype is largely the same, but the P2P protocol for calls/messages was dropped in favor of a reworked version of the MSNP protocol from Windows Live Messenger, which is also reasonably more secure than it was in that client, as it now enforces the use of the HTTPS gateway - i.e. all your traffic is still technically encrypted, just with TLS now.
Perhaps it’s not as insecure as you think it is. I encourage doing research before making statements such as this 
.