Tim, I actually use TruCrypt now to do exactly what you speak of. I pre-allocate a fixed virtual disk, and use
one passcode for one section of data and a different passcode for a different section of data. It is impossible
to determine if the disk is set up in this manner, and impossible to tell which section of data is being used. It
is actually quite easy to do.
All fine and dandy until the authorities say "Your honor, the defendant
is using nested encryption, we didn't find the
$self_incriminating_evidence so he obviously hasn't complied with our
request".
double-edged sword.