With Lion you can now encrypt your whole drive now right? Has anyone done this on the new MBA? Any performance issues or any other issues with the encryption?
Yes, that was one of the first things I did. I haven't noticed any performance issues. The only issue is that a Boot Camp installation can't read an encrypted Mac partition since the HFS+ drivers that Boot Camp installs don't work on an encrypted drive. That said, a virtual machine in Parallels or Fusion will still be able to access the Mac partition.
I had about 50GB to encrypt and ran it overnight, but I think the whole process took less than an hour. Decryption (if you decide to turn FileVault2 off) works the same way.