Time Machine will work on backing up the filevaulted home directory as long its owner is logged out of the Mac. It is a very clunky solution. There is no differential backup capabilities available for a filevaulted home directory.
You could try CrashPlan (the free version only has ads), but it lets you install it for a single user. This way you have differential backup for that user, but this solution leaves you without a full Mac backup solution.
I hope whole disk encryption in OS X Lion will address this inherent incompatibility between encryption and backup.
Note that there are ways to encrypt your Time Machine backups, too.. I can point you to links if you are interested.