Truecrypt: File vs Device hosted encryption

Solution 1:

Partition pros:

1. It's harder to accidentally delete a partition. :)
2. Necessary when encrypting the entire operating system.

File pros:

1. Files are easier for many people to understand.
2. Files are easier to move/copy.
3. You can use the rest of the partition for other files (like the traveler mode files)

Solution 2:

The other option that TrueCrypt provides is to create "headerless" file containers inside either encrypted partitions or other file containers, thus hiding even the existence of the file-within-a-file for maximum deniability; the only way someone can know it's there is...well, to know it's there. Combines all the advantages (and disadvantages) of both methods.

Solution 3:

Just to expand upon Jeremy's second file 'pro': you can share file-based encrypted volumes, which includes hosting them online on a service like Dropbox, which is a great way to share sensitive information and to create secure backups, or even to access sensitive information with other computers you use.