I was talking to a guy who makes "encrypted" USB drives at the NSA TCC recently. It sounded scarily hand wavy to me. I was asking, "but where is the key stored" and he tells me with a straight face, "right on the drive".
My experience with these is that you must either use your PKI certificate or a password as the key to decrypt the drive. The default configuration is generally to use the PKI certificate on the chip embedded in your ID card. Since you have to have that card in your computer to be logged in to begin with, using it to access other stuff is essentially effortless.
