We've been told they do encrypt files internally. I don't think there is any usable way to have users manage their keys by themselves. Who wants to input large encryption keys to their mobile phone every time they want to use Dropbox? And if the phone remembers the key, then it's not too far from the current situation.
Certainly, but the practical privacy implications are probably similar. In case of a stolen phone, the thief has access to all the files in both of these cases. Sure it would be cool if Dropbox wouldn't have any access to our files, but I don't see how it would happen without eroding the usability. It could be an opt-in feature of course.
