After playing around with the JMS software and talking to Edwin (who has been very helpful). I have a small concern.

It seems that a user can go in and change their media directory. In theory, they could change it to another existing website.

What have others done to segment between sites as much as possible when using this in a public hosting environment?

When you are on Unix platform you can have specific folder and therefore the problem to give a directory that can not accessed by another website.
When you are working on a Windows platform, unfortunately, all the websites must have the same root directory as the master website and therefore it is possible that a slave site change the global configuratoin media path to have access to the media and image folder of another websites.