How can I get Time Machine to back up the contents of a FileVault while logged in?

It is possible to backup your FileVaulted home directory with Time Machine while logged in. The files will be stored unencrypted in the Time Machine volume, just like other files. I've written a blog post explaining the whole process here.

I've independently confirmed that you CAN actively Time Machine a FileVaulted OS X home directory to an OS X Server share configured for TM backup usage. Strangely, OS X gives you an error message saying it WON'T work when you turn on TM, but then it does. The workstation is running OS X 10.6.7, the server is running OS X Server 10.6.7. I haven't tested with any other versions of the OS.