Little Vermont has never seen anything like the boom town that has sprung up in the shadows of Killington Mountain. And it doesn't quite know what to do about it.

One state legislator calls the sprawling development "Disneyworld East." A local resident complains that it threatens to make "Vermont look like New Jersey or Coney Island."

Sherburne, once a sleepy logging town, has become a helter-skelter collection of motels, ski shops, bars, restaurants, vacation homes and hundreds of new condominiums selling for as much as $300,000 and often used as tax shelters.

It is part of the biggest ski-area boom in New England history, a "Coloradofication" of a region dotted with picturesque villages across the Green Mountains.

The boom has divided Vermont's 516,000 residents, setting "pro-growth" environmentalists against "pro-environment" developers, town against town, in the nation's most rural state.

The growth battle has become a familiar one in town halls and state legislatures across the country.

The battle here poses emotional questions about the state's economy and fundamental values, as well as its environment.

Among them: Can Vermont survive the recreation boom, and the latest wave in the back-to-nature movement? Is skiing the state's economic salvation, or is it transforming the state into a playground for the rich? Can a tiny state government marshal the will and manpower to protect its rivers and mountains? Can it win a fight with big corporations?

After all, Vermonters ask, "Whose mountains are these, anyway?"

"If the pattern is not changed, Vermont will simply become a host state complete with thousands of low-paid lackeys and a playground where we do all the working and someone else does all the playing," said state Rep. Donald Chioffi of nearby Rutland.

At the center of the battle -- being waged in the state legislature, local planning boards, town meetings and the courts -- is a cast of colorful, independent-minded characters, including:

* Gov. Madeleine Kunin, who took office this month. Only the third Democratic governor in state history, she campaigned on a pledge to control ski-area development, and her political future may depend on how she handles the issue.

With Democrats controlling leadership positions in both chambers of the state legislature for the first time, she appears to be in an unusually strong political position, despite her narrow election margin.

But Kunin cautions: "It may take some time. There isn't one simple solution . . . . I don't want to stop everything in its tracks. But I don't want to give carte blanche to the developers. We need to find some middle ground."

* A group of environmentalists, many of whom moved to Vermont during the last 15 years because of its quiet, rural character and now stand accused of "drawbridge mentalities." Almost all describe themselves as "pro-growth." Many of them first entered the state on skiing trips.

Eric Palola, a former professional downhill ski racer who works for the Vermont Natural Resources Council, said his parents moved to Vermont so he could ski. "A lot of times I find myself in the paradox of wanting to close the door behind us," he said. "It's not a comfortable feeling."

The environmentalists charge that builders have plans that would provide housing for 40,000 people in the Sherburne area, a population that would rival Burlington's as the largest in the state.

* Preston L. Smith, president of Sherburne Corp., a self-described "environmentalist" who came to Vermont as a farmer. In 28 years, he has transformed Killington Mountain from a seldom-visited slice of Calvin Coolidge State Forest into the biggest ski area in the East, with 900,000 visits annually.

Smith, 54, is a hard-driving businessman, whose stubborn -- opponents say high-handed -- ways have made him one of the state's most controversial developers.

He sees himself as a victim of "a few no-growth types" who have needlessly "worked themselves into a frenzy" and confused the public with exaggerated rhetoric.

"Vermont," he told stockholders in the company's annual report, "is faced with a group of people who are steadfastly determined to do everything in their power to cripple our ski area, our employes' future, and all the tax and employment benefits that skiing, recreation and travel bring to Vermont."

This stand, he concedes, has caused a public relations problem for his company. "We're in a situation where the hysteria could cause people to pass laws that wouldn't be good for anyone," Smith said in an interview, adding later, "Maybe it's going to take everyone down with it, including the state."

He insisted that his firm has no intention of harming the environment. "The environment is what brings people to Vermont," he said. "That's what we sell. We live on the beauty of the streams and mountains."

Smith said his opponents have greatly exaggerated the extent of development in the Killington ski area. "I'd be frightened, too, of a 40,000 population," he said. "There's just no possibility of that happening. Holy cow, I wouldn't want to live in a place like that."

Smith said that his company's success has been built on slow, gradual growth, and that he has no intention of abandoning that philosophy. Last year, Sherburne built 190 condominium units, he said, adding, "We can't sell any more than that."

The 190 units and a new golf course are part of a 400-acre, European-style ski village, designed for year-round vacationing, under construction near ski slopes. Plans call for 2,800 condominium units, 300 hotel rooms, tennis courts, a health club, restaurants and specialty shops.

Other builders have about 700 more condominium units planned or under way nearby, including some around the neighboring Pico ski area. Developers have projected hundreds of additional units.

The plans are part of a major shift in the ski industry toward year-round "destination resorts" and condominiums. It is fueled by tax laws that allow the use of second homes as tax shelters provided they are not lived in by their owners more than two weeks a year.

Until recently, many Vermonters seemed to think that the state's Act 250, considered the nation's toughest environmental law when enacted 14 years ago, could keep the boom in check.

But Kunin and other officials complain that the law deals only with individual projects piecemeal, and does not look at the cumulative impact of ski resort development.

It was concern over sewage disposal and water quality that first attracted environmentalists, who last June formed the Ottauquechee Coalition, named for a river that flows from Killington through one of the state's most beautiful valleys.

The state estimates that the town of Sherburne, with a year-round population of about 1,000, could generate as many as 2.6 million gallons of sewage a day when fully developed.

The state has rejected two novel disposal methods proposed by the Sherburne Corp.: spraying treated sewage on the Killington Village golf course and using it for making artificial snow.

Although the company has sprayed treated sewage on Killington's slopes for 14 years, the consequences are in dispute. "We think the state should require everyone in Vermont to do this instead of dumping it into the streams," said Smith, who said the treated waste "looks as clear as spring water."

But environmentalists contend that the hillsides are too steep to absorb nitrates and phosphates in the wastewater, and that the liquid, if used for snow-making, would melt into the Ottauquechee. A bumper sticker reads: "Killington: where the effluent and the affluent meet."

Environmental issues are only part of the controversy, however.

Another part is economic. The Vermont Chamber of Commerce estimates that tourism is a $1.2 billion-a-year industry; one-third of it is skiing-related. Killington employs 1,200 at the height of the season, and reports an annual payroll of $13 million.

Many Vermonters do not want to jeopardize what they consider a good thing. And several communities, including Sherburne, endorse further development.

But who pays for the roads, sewage plants and power generators needed to support the vacation industry? And how do towns miles away from ski areas finance the teachers' salaries, schoolrooms and other government services needed by ski-area workers, many of whom are relatively low-paid?

"Why should Vermonters, many of whom can't afford first homes, be asked to bear the burden of second-home development?" Kunin asks.

The state's promotion of the ski industry is also under debate. Sherburne Corp., for example, has been a major beneficiary of state aid.

It operates the Killington ski area on land leased (for $2 million in 1983) from the state, and last September the firm was authorized to issue $7.3 million in tax-exempt state industrial development bonds for capital improvements.

"There is a place for skiing," said state Rep. Donald Hooper, a Harvard graduate who runs a goat farm. "It's great for the state during snowy years. But you get a couple of brown winters, you're going to get screwed."

Francis Mooney shares those fears. Every day of the winter, Mooney watches cars bearing out-of-state license plates stream by his tiny gasoline station in Woodstock, a pristine town on the Ottauquechee about 20 miles from Killington. Mooney doesn't approve of the skiers, and not because few stop at his station.

"You can't live on pleasure," Mooney said. "A ski area isn't like a farm. A farm is productive. It's always going to be there. You need two things for skiing: time and money. A working man doesn't have either. You have a war or a depression and it could all go poof."