For many people, it isn't 'it'. Sure, we all want security, but for most users, this is not about a stolen PowerBook or iBook and that the thief shouldn't be able to read our files - it's rather about the security of networked computers, and FileVault does nothing about that. (Unless, of course, you're not logged in and thus the .dmg isn't mounted.)
However: If you _want_ to use FileVault for your really important files, yes, a rearrangement is necessary. But then again: This is a good occasion for cleaning up the notebook, anyway... And it's easy, too, as long as you have another Mac (or server or good and big backup drive).
1.) Clean install Panther (or Jaguar, if you haven't got Panther - or rather: Buy Panther!) ;-)
2.) Set up your user and turn on FileVault _before_ copying the files back from the backup.
3.) _THEN_ copy back the stuff that _belongs_ to the vault. And organize all other stuff _outside_ of your home folder. (Why not create a folder called 'files' at the root of your harddrive? Sounds good.)
I have made me a little note on the fridge that says: "When you feel like completely reinstalling the iBook, remember to rethink about FileVault."
I'm not sure I'll use it ever. I also don't think it's necessary that I reinstall my iBook now, because of it. (My home folder takes up more than 70% of the internal drive, so I can't activate FileVault right now, anyway.) But maybe, just maybe, I'll do it at the next complete reinstall or when I buy my next notebook.