Straight from Drew himeself:

   data's stored on s3, and encrypted before storage -- there'll be another 
   option to enter in an additional passphrase (or private key) when installing 
   in order to encrypt your data before it leaves your computer (kind of like 
   what mozy does.)

It is sad to me that this never came to pass. I guess the desire to offer a web interface overrode the idea of encrypting the files before they left your computer. Not that you can't use your own encryption, but having it built in would have been great.