I'm not totally up to speed on encryption techniques, but it looks like this makes it somewhat obvious that you have encrypted files on your machine by mapping a new encrypted file 1 for 1 to the files that you're storing.

In this case, wouldn't you lose plausible deniability? If I remember there's a feature in TrueCrypt which allows you to have two passwords, a fake password that you could use if questioned that decrypts a portion of the volume, and the real password that decrypts the entire thing. I maybe conflating two separate things, though.