So, I've decided to give my laptop an overhaul and upgrade to Ubuntu Gutsy.

Instead of using FUSE with EncFS, I'm going for dm-crypt this time. A guide on how to do this can be found here:
http://pupeno.com/2007/06/10/encrypted-home-ubuntu/

In good singularity tradition, I've created a new Ubuntu repository for Gutsy, which I will use when reinstalling my laptop for real.
This repository kan be found under http://www.singularity.be/gutsy/

After installing singularity-encfs (the name didn't change, it's still an encrypted filesystem), set a password on the root account and logout the regular user. Then login as root and execute

singularity-encfs  

In my QEMU situation, I usually run

singularity-encfs guest /dev/sda2