I need my Flash client to communicate with a server securely (through binary sockets). For this, I was thinking of embedding a pre-shared key inside the AS3 code and exchanging XORed data through a custom protocol.
I am told that SWF decompilers do a good job at making all embedded code clearly apparent and readable. Does this mean that I can't really hide my key?
If this method is impractical, what other options are there? I have tried as3crypto, only to find that it's full of shortcomings and lacks serious documentation.
You cannot hide your key at all - SWF is totally untrusted, can be easily decompiled. It's pretty difficult to deal with security with SWF's because they run on the client and are not trusted.
It might depend specifically on what you are trying to accomplish with secure communication. For instance, if you are trying to secure a high-score system that is pretty much impossible because the game runs on the client (the SWF) and they can manipulate it to spit out any score they want to the server. Here is a good read on this: What is the best way to stop people hacking the PHP-based highscore table of a Flash game
If you can use the SWF only as a front-end UI and all logic takes place on the back-end, then you can secure your application (using the above highscore example, if the game was not an AS3 game but actually ran on the server itself, it would be a lot easier to secure, because the backend is trusted and cannot be modified or viewed by a user), but if the logic takes place on the SWF then you are pretty much out of luck.
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