But that would largely eliminate most of DropBoxes usefulness. A large part of what makes DropBox attractive is it's integration with the operating system.

It is possible to integrate encryption seamlessly with Linux using dm-crypt and OSX is basically BSD (darwin) below the UI so there should be something there as well. As for windows, I heard (somewhere, and with no substantiation) that MS was working on a full disk encryption system. Then again, If you have enough technical resources to setup a crypfs system on a linux box, it should be trivial to setup fileserver on Amazon S3 or some other system so thats not really a good solution.

I think that this highlights a general problem with web-based services. How do you trust them to safeguard your data? Its hard enough when the software is local on your own computer and you have contact with some immediate physical retailer but with the web, who knows?

Oh well... Its the old security vs. convenience problem again.