Encrypting a few files is relatively easy, building an encrypted drive is a bit more difficult, so why not simply encrypt everything including the OS?
I found really good article that explains how to do that on Ubuntu. The technique uses AES as the encryption algorithm along with three partitions - one for the boot drive, one for the swap area, and one for the root partition.
I haven't tried this yet but I intend to. Check out the article, "Encrypted Ubuntu 7.04," over at the Softpedia Web site.