If you install Ubuntu from the alternate CD instead of the Live CD then you can
set up an encrypted file system using LVM. I am not sure if this is what you had
in mind.

Here are step-by-step instructions for Ubuntu 7.10, but the same thing will work
with 8.04: ....softpedia.com/.../...d-Ubuntu-7-10-68383.shtml

Alt CD instead of Live CD, newbie just getting my feet wet
here.

I hadn't run across the Alt CD method yet, are there advantages to installing
that way?

There are, for one if your want to install quickly, I found that if I am
installing on multiple systems and don't really want to bring up a GUI first
(blank HD or some such) I prefer to use the Alt CD method because, well, no
GUI just goes.

If the system has very little RAM, as in, 256Mb or so, anything less than
512Mb. Mainly because the I have also found that the unionfs driver (that
allows the Live CD to boot into a fully working copy of Ubuntu) likes to
have more RAM than that and sometimes causes problems if you're working on
less than 512, though I have gotten it to work on 256 it was very slow.

Lastly, if you have some strange driver combination in your video devices or
X won't recognize your mouse (or name other needed device here) off the bat,
it can be good to get an install going then deal with the problem after it
is installed since you can always bring up a command line in Linux as long
as your keyboard is working.

now I know why I might need to take the alt CD approach sometime in
the future.

The alternate CD can be found on the same download page:
http://www.ubuntu.com/getubuntu/download
But you need to check the box at the bottom.

The alternate CD has more flexibility. It is briefly discussed here:
https://help.ubuntu.com/community/Installation
and here: https://help.ubuntu.com/community/GettingUbuntu
and more detailed here: http://releases.ubuntu.com/8.04/

I'll definitely check it out. I have a
very old laptop that I may try reviving just for the fun of it using some of
your suggestions.

This way there will be only one password to decrypt the system and you will
have to tell it to anyone who needs to use the notebook.
With an USB token login I can make for example 2 public/private keys and
generate 2 tokens. One to my login with full system access and another to
guest access with limited privileges.
That is the way that software works in Windows. I could not find any path to
make Ubuntu work like this in Google neither in forums.
The closer I found is an implementation of a PCMCIA token to sign e-mails (
http://www.linuxjournal.com/article/4744).

I know that this isn't what you asked for, but maybe it will work as
well. The end of this month, Intrepid Ibex is going to be released and
one of the new features is a "guest" account. You log on to your
computer and then switch user to the guest, where the person using it
has no access to the hard drive. It would be similar to using a live CD
under only faster.

maybe take a look at KBluetooth, it has a nice lock
function Kbluelock, you can configure it that it
reacts on the bluetooth serial number of your phone
so you can enable it for your and other peoples
cellphone, sesions lock automatic when you are away
from your pc as long you not forget to take your phone
with you :)

I was taking a look through add/remove and came across an application
called cryptkeeper, I don't know if it will work for you, I haven't
tried it, but it looks promising.