Here’s my view of the problems with the security through obscurity approach. First I’ll discuss encryption, then steganography. I use StO to mean "Security through Obscurity".
It’s true that obscurity can’t hurt and might help. If you can not only keep your key secret, but your algorithm as well, then the attacker will have a much harder time breaking your encryption. And traditionally this has been done. I understand that much of the work in breaking the codes during WWII was involved in finding out the algorithm; once that was done then finding the keys was a considerably smaller problem.
I think the the "No StO" maxim refers to a design methodology for the creation of cryptographic algorithms. In this technique, you divide the algorithm into those parts which must be kept secret, and those which don’t have to be. The parts you keep secret you call the key, and you accept that you will have to take extreme measures to protect those secrets. The other parts are less protected.
In other words, you conceptually draw a line between those parts which have to be protected at all costs, and those which don’t. You then analyze the algorithm’s strength on the assumption that the secret parts are kept secret. You also carry out the analysis on the assumption that the non-secret parts fall into enemy hands. In the end, an algorithm is judged on this basis.
In the context of this design technique, StO would refer to the hope that the non-secret parts are also kept from enemy hands. While this may be desirable and beneficial, it breaks the rules of the method.
The advantage of this method is that it allows you to do a clean cost versus benefit analysis. You calculate the cost in terms of what it takes to keep the keys secret, and you calculate the benefits in terms of how much security you gain if you keep the keys, and only the keys, secret.
To also give credit for the additional security of keeping the non-key portions secret, you would also need to calculate the costs of keeping those parts secret. Since historically it has been very difficult to keep all parts of a cryptographic method secret, one has to consider these costs to be very high. Avoiding StO means avoiding falling into the trap of counting the benefits of keeping the non-key parts secret without counting the costs.
In this light, there is no inherent violation of the NoStO principle in a cryptographic system which keeps the algorithm secret. It simply means that the algorithm has to be considered as secret as the key, and protected just as securely as the key is protected. In many circumstances this would be excessively costly but in some limited situations it may be practical. As long as you fully recognize that this line between the secret and the non-secret portions is drawn to put the algorithm on the "secret" side, you are properly avoiding StO.
In the context of commercial or public-domain cryptographic algorithms, it is basically impossible to keep algorithms secret. That is why any cryptosystem of this nature which relies on a secret algorithm is scorned as violating the NoStO principle. It is generally not practical to expect to keep a secret which is made widely available.
To sum up, obscurity is not bad. What is bad is to confuse obscurity with security.
Now, in the context of steganography, we should make clear what problem we are trying to solve. There are several components to this problem, but I will focus just on the last step: hiding one bit pattern in another. Generally we do this by replacing some of the bits in the target data with bits from the data we are hiding.
In encryption, the opponent’s desire is to find out the original message. What is the opponent’s desire in steganography? I feel it is to be able to prove or determine with some degree of certaintly that there is a hidden message. We use steganography in a context where sending such a message openly is for some reason undesirable. Hence our goal is to prevent the opponent from knowing that a message exists.
A test, then, for the success of a steganographic technique is this: given some sampling of data items, half of which have embedded hidden messages, can the opponent guess which ones have such messages with better than 50% accuracy? If not, the steganography is fully successful. If he can do slightly better than 50%, it may still be useful depending on the situation. If he can guess with 100% accuracy, the steganography has failed and is totally worthless.
Now, how does the NoStO maxim guide our attempts to evaluate steganographic algorithms? Again, the basic principle would be a need to separate that which would be kept secret from that which would be publicly known. Any system which relies on keeping secret some information which must be widely disseminated is not correctly accounting for costs when it touts its benefits.
In the systems we have been discussing for a layered approach to steganography, the actual embedding step has no secret component. Rather, the message is first encrypted and possibly transformed in such a way that it is statistically identical to the bits which it is replacing. The actual steganographic step simply does the replacement.
In this layered approach, there is no provision for key information to be used in steganography. Rather, the receiver of the message has only publicly available data. This means that when we "draw our line" we exclude nothing from the knowledge of our opponent. In counting the benefits of the steganographic algorithm we assume that the opponent will use exactly the same technique to de-steganize the message as our intended recipient will.
Therefore, we are forced to assume that the opponent can successfully extract the hidden message. Now, the question that he must still answer is, is this in fact a message or is it just random noise? In order to meet the goal above of making such a guess impossible with better than 50-50 chances, it follows that the message must appear identical to random noise. Any pattern in the message, such as a plaintext header, will make the steganography useless.
This is also why proposals to scramble or permute the bits as they go into the data, or to use a special offset instead of the beginning of the data (then wrapping the bits around when we come to the end) do not fundamentally help the situation. By the basic premise above, we assume that the opponent will be able to undo such artifices just as the intended recipient will. This way, again, we count our costs and benefits on fair grounds.
Now, it is true that this is assuming that there is no "key" information used in the steganography. The NoStO principle would lead us to investigate keyed steganography, where the receiver has specific secret information which the opponent would not have. But if we are going to do this, we have to accept the costs. That key must be kept just as secret as the keys in an encryption system. We can’t just let it be something obscure like a checksum based on a public key, information which the opponent will have as well. It has to be *secret*. That is what NoStO tells us. If we want the benefit of a key, we have to pay the cost.
It’s not clear whether keyed steganography has any benefits over the unkeyed system discussed above which is used as part of a chain which includes (presumably keyed!) encryption. It would seem that the stego would still have to match the statistics of the bits being replaced, and if you can do that then the unkeyed approach would work. But perhaps there are useful solutions along these lines.
The important point, again, is that if you want a secret, you have to keep it secret. Looking at the advantages of a system which benefits if some information is withheld from the opponent without calculating the costs of actually keeping that information secret is the foolhardy behavior which the NoStO principle warns against.
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