Well, it can be captured where ever the packet travels, which on the internet is a lot of places. So at any point it can either be listened to or intercepted and forwarded on. I guess you need to explain to them that the internet is not a direct communication between two points, but a jungle where the communication is passed from one point to another until it actually gets to the intended recipient. And in some places it might be broadcast for anyone to grab and analyze.
I think the main point that you can make is that unless some type of secure communication agreement is setup between the two machines, then the machines are talking in a common language that needs to be understood by anyone, and if they are talking in a common language, that means that any one can also understand what is being sent.
You could run a trace route to another server and show them how many different places the data is going before it actually gets to the intended recipient. A tool in Windows can be installed from the windows components section called network monitor and that will capture any packets sent on the network interface cards connection (most lans now have switches so they don't forward data that isn't intended for that particular nic) and you can then open those packets and actually read clear text in them.
Hopefully someone can find a way to explain it better and clearer.