A lot of this does not make sense to me. Dropbox allows you to view your files via a web browser interface. Obviously that means they can access the unencrypted files. Perhaps people would prefer not to have the web access features.
But even then, if Dropbox never stored the decryption keys on their servers anywhere, and the decryption key was stored only on a client PC, and I lost my computer, I would not be able to access the backed-up data from Dropbox on a new computer. That would kind of defeat the purpose of Dropbox for me. As many others have pointed out (including Lifehacker) you can always use Truecrypt to put some stuff in your Dropbox that no one but you can decrypt.
As far as the "feds" getting my data, if they are after me, they can get a search warrant from a judge and come into my house and confiscate all of my computers, which would allow them to access any data on my harddrives not encrypted with Truecrypt...
But even then, if Dropbox never stored the decryption keys on their servers anywhere, and the decryption key was stored only on a client PC, and I lost my computer, I would not be able to access the backed-up data from Dropbox on a new computer. That would kind of defeat the purpose of Dropbox for me. As many others have pointed out (including Lifehacker) you can always use Truecrypt to put some stuff in your Dropbox that no one but you can decrypt.
As far as the "feds" getting my data, if they are after me, they can get a search warrant from a judge and come into my house and confiscate all of my computers, which would allow them to access any data on my harddrives not encrypted with Truecrypt...