Dropbox seems pretty transparent about their terms of service and provides a good level of security in our opinion. They explain that they do manage the encryption key which allows them to provide service that works easily between users and the ability to download and preview files. This does means that they can decrypt the file and state that they will under very limited circumstances such as by court order. They even suggest a method to encrypt the file for putting it into a dropbox folder. Read their post regarding this  http://blog.dropbox.com/?p=735