Originally Posted by mprewitt
FileVault stores all your data in a single encrypted image. If this one file gets corrupted, you stand to lose everything.
If you're running Leopard, FileVault now uses a sparse bundle disk image to store your user account. This is a new Time Machine-compatible format that breaks up the disk image into multiple files called "bands", each of approximately 8 MB in size. The bands are stored in a bundle (really a folder) that looks like a regular disk image file. When you double-click the bundle, the bands are reassembled to appear as a regular disk image volume in the Finder.
Of course, corruption is still a risk. I imagine if one of those bands gets damaged, the entire sparse bundle disk image would no longer mount. But I do know from personal experience that you can replace individual bands from a backup if the contents of the sparse bundle disk image haven't changed. You can also use it to do large uploads a little bit at a time (i.e. uploading a whole bunch of 8MB files is easier to stop and resume than one huge, monolithic, 8GB file).
Of course, the sparse bundle disk image format also makes backups of large disk images much easier because only changed bands need to be copied. And since bundles are typically seen as simple directories by Unix utilities, it should work with most Unix-based backup applications.
PS - I'm not necessarily promoting the use of FileVault. I don't personally use it. I prefer to keep all my sensitive data on a separate encrypted sparse bundle disk image and only mount it as necessary.