I had $15 in expiring gift cards from when I bought my new TV, so I decided to pick up an inexpensive 2gig Flash drive online.
To increase my peace of mind, I decided to store everything important to me in an encrypted disk image on the device. I used the same method I use to create a FileVault image, and then just moved the image file over to the flash disk.
I've been really happy with the performance, and it's great know that WHEN I lose this tiny thing, none of my private and very sensitive information will be accessible to whoever picks it up.
In addition, there's really no additional barriers to using this encrypted disk image. I store the password to the disk image in my Keychain, and it's also encrypted with the FileVault Master certificate as an added layer of protection against forgetting my password.
Finally, even though the following command creates a sparse bundle capable of storing 300 Gigs of data, the Finder will realize the image file lives on a 2 Gig flash drive, and will only display the free space available on the "parent" filesystem.
The command to create the Leopard-only disk image is:
umask 077
export NAME="secure"
hdiutil create -size 300g \
-encryption -agentpass \
-mode 0700 \
-fs "HFS+J" \
-type SPARSEBUNDLE \
-layout SPUD \
-volname "$NAME" \
"$NAME".sparsebundle;
