For a secret clearance (which all officers need), you have to fill out a complete EPSQ (electronic p-something security questionnaire). They will do credit checks and other database searches, but they will not USUALLY check any of your references. They are entitled to, however.
You should fess up to anything that is on record anywhere because they will most likely find it.
For a TS, they will do an SSBI (Single Scope Background Investigation). This does entail interviews with your references, as well as other people that they can dig up (roommates, ex-spouses/girlfriends, bosses, etc). Just because somebody says something bad about you, it doesn't mean you won't get your clearance. They are just looking to see if you have patterns of irresponsible behavior, you are a blackmain threat, or you have lied about anything.
When my old college roommate got hired by No Such Agency (NSA), an FBI officer showed up at my doorstep at 7 am on a Saturday to flash his badge and ask me questions.
My roommate was a pretty wild guy as a youngster in college - he had even smoked dope and some other things you are definately not allowed to do as an officer. He had to take a polygraph (although I don't believe this is a requirement for normal TS clearances). He fessed up before the polygraph so it was not a disqualifying factor. They asked him "have you ever used any illegal substance," but they also asked him "have you ever used marijauna while in a position of public respect, authority, or responsibility."
I think if you are going to be an FBI special agent or something, they want somebody who is squeaky clean. For an NSA engineer, however, there is a little more wiggle room as long as you are responsible and not a security threat.
I imagine a Naval Officer fall somewhere in between. If you pop dirty on a drug test now, they will toss you out on your a$$. If you tried a joint when you were a freshman, they will work with you. Same goes for financial problems, etc. Also, there is a big difference between fathering 15 illegitimate children and having a few questionable hookups.