Now that File Vault 2 can encrypt the entire disk and encrypt external drives, can I have a fully encrypted Time Machine volume?
According to the Lion features page, encrypted backups are supported.
Daniel Jalkut's blog today has a post that may be what you're looking for.
% diskutil cs convert /Volumes/Data -passphrase [yourPasswordHere]
I haven't tried this yet, I just got Lion installed about an hour ago. Any destruction of your system is on your own head.