I personally use Encryption Plus Folders from PCGuardian, as well as PGP for on-the-fly-encryption without any problems. Both are easy to use, and come with a choice of algorithms.
Because both use passwords as crypto keys, the security is only as good as the password.
An easy-to-guess or poorly protected password and keystroke monitoring are basic threats to most of the personal crypto products.There's a pretty thorough analysis of a whole range of similar products at http://www.fortunecity.com/skyscraper/true/882/CertainOTFESecurityFlaws.htm.
For more information on this topic, visit these other SearchSecurity.com resources:
Featured Topic: The Encryption Debate
Tech Tip: A primer on encryption
David Strom's Security Tool Shed: File encryption made easy
This was first published in February 2002