When a user is logged out of FileVault, it appears on the computer as one large bundle file that is encrypted. When the user signs in, the FileVault bundle decrypts and all the files appear in normal folders. Currently Backblaze backs up FileVault both ways. The recommended way to backup FileVault is to logout and leave your computer running so that our backup process can back up the sparse bundle bands. However, if you are logged in and Backblaze is running we will backup up many, but not all, files in from the mounted sparse bundle.
The question at hand is really how opaque do you want your files to be on the restore server. All the files are encrypted and then sent over HTTPS. On the server all your files including the indexes are encrypted. So the back to "opaqueness", the difference is on the Restore page. If you decided to only backup the sparse bundle bands you will just see the sparse bundle directory and its bands. On the other hand if you decide to do an online backup of your home directory mounted, you will see the actual files.
*Please Note* If you are using FileVault 2 on Lion or Mountain Lion, you will NOT have to do the steps expressed above. We are fully compatible with FileVault 2 and no additional steps need to be taken.