Wild Speculation on iPhone 3G S Hardware Encryption
zetetic.net
zetetic.net
iTunes backups are not encrypted by default because you have a key management issue. The primary purpose of the backup is so that you can restore it to a different device after your main device is lost or broken. Since devices where backup is taken and restored are different you can not use built-in key to encrypt the data. There are only two options where to store the key - with the backup itself (which is entirely useless) or with the user. Which is exactly what iTunes does - it allows the user to specify a password that is used to generate the key.
So such design would work and is simple enough, hence "pretty sure".
If you like wild speculation, it is likely that the block key is large enough to provide adequate security, and that it is stored locally but encrypted with a data encryption method like RSA. The password for this might be as simple as a 4 digit pin, but thats irrelevant because the encrypted encryption key would be the first data wiped in the event of a data breech. If you're really paranoid, you could store a larger key on the network. Rebooting the device would then require network access, but it protects you against someone removing your compact flash and reading it directly.
Obviously backup files are not encrypted, or they wouldn't be very useful. If they are encrypted, it will only be as strong as the user specified password, or key stored on MobileMe.
The post only speculates about the meaning of Apple's carefully worded feature description, the scope of the device encryption, and whether it's primary intent is to enable the remote wipe feature.
With regard to four digit pins - the strength and length of a password is hardly immaterial to security if it is being used to derive or encrypt the key. This is especially true if the wipe needs to be triggered remotely. Storage of the key on the network or MobileMe would present a host of other issues that I suspect Apple would want to stay away from.
The article doesn't mention Apple's understanding of encryption, but it seemed to speculate that this encryption wouldn't be "real" encryption: "is it really securing the device while running".
As for the length of the pin, it isn't as important as you think. Assuming the attacker doesn't read the compact flash directly (there is very little you can do at that point), you can store a strong encryption key on disk and protect the device via an exponentially increasing lockout. If the key were also stored in iTunes, you can always wipe the key from disk and require the phone be re-sync'd.
Anyway, my point is that the original article is lame.