Yeah... FV1 was very similar. It encrypted only the user folder using this method.
What you read about accessing the PW from RAM involved Direct Memory Access (
DMA) to access data stored in RAM. That was patched/blocked in Lion 10.7.2 and is no longer an issue.
An encrypted disk image is a safe option and just as safe as FV2. That said, if you are on a newer machine (like i5 chip and up), the speed hit for using FV2 is very small, and there really is no reason not to just turn on FV2 and encrypt the entire drive.
Is there some reason you only want to encrypt one folder rather than FV2 to whole drive?