Yes, the security policy must be edited for each client machine.
A safer approach would be to add that Server as an Intranet or Trusted Site
in IE using File:// URL, but only if the default permissions for those
groups are appropriate. I wouldn't increase the permissions on those code
groups.
To see the permissions for a particular code group, use the .NET Framework
Configuration (Control Panel > Administrative Tools on XP).
If you really need Full Trust or higher permissions than Trusted Zone
allows, you can create a new code group (and optionally a custom permission
set) and set its membership conditions appropriately. There's a wizard that
can configure it for you by choosing Runtime Security Policy, then clicking
Increase Assembly Trust.
A deployment package for the security policy can also be created from the
admin tool.
HTH;
Eric Cadwell
http://www.origincontrols.com