iPhone OS 3.0 is the gift that just keeps on giving, this time revealing features in iTunes 8.1 we hadn't seen before. Now, when you hook an iPhone running the 3.0 beta 1 software up, under the Summary tab you have a new option: Encrypt iPhone backup.
Checking off the option opens a pop-up window for you to enter your password.
We're not sure yet what form of encryption Apple is using, though the Steve Gibson is us hopes it's something with a really, really strong security focus. Especially for those in enterprise or government who might have a need for it.