OutThere has a good idea, though I differ on the opinion that it will generate a 1 to 1 file size.
I generally think that people over think what needs to be secure, or the risk of somebody actually mounting an external drive. This said, I use a program to securely encrypt all of my software keys, address book, and personal information.
I really don't think you should worry about encrypting a scratch disk. You will take a performance hit if you do that, and there are drives that will do it in real-time. Simply zeroing out the free space should be sufficient. While it is possible to use AES grade encryption in real-time is OS X,
FileVault, it has a lot of drawbacks.
Other options are using any number of third party encryption programs that use any number of algorithms like
TwoFish,
Blowfish,
PGP, etc to encrypt your backup after the fact.
I am not posting a preferred one, as in general as soon as I do, somebody points out it has been cracked or is unsafe with out supporting it. Look around and you will find free and pay implementations of any of those algorithms.
Generally, I think that there is no reason to protect most data. Again, I do encryption and I always use strong passwords. If you use any encryption, don't use weak passwords. I do use a free Random Password Generation program, called
RPG. There are others out there, but this one is small.