Problem Using Windows Encryption with Dropbox Folder

I have Dropbox installed on my Windows 7 PC, and decided to encrypt the Dropbox folder for added protection.  While TrueCrypt seems popular, I decided to use Windows’ built-in encryption.  After some time, I noticed that some of the files in my Dropbox folder were not encrypted.  This was odd since the default Windows behavior is to automatically encrypt new files placed inside an encrypted folder.  Eventually, I figured out that when Dropbox creates a file (by syncing it from another PC), the new file is not being encrypted.  I tried the following tests:

1. I created a new file locally under the Dropbox folder.  It was automatically encrypted.  This is normal behavior.
2. I copied an existing local file from another folder into the Dropbox folder, it was also automatically encrypted.  Again, this is normal behavior.
3. I created a file on another machine, and let Dropbox sync it to my Windows 7 PC.  The synced file was not encrypted.  This is not what I expected to happen – I expected it to be encrypted like in tests 1 and 2.

The folder looks like this after the tests (Windows highlights the encrypted folders green):

My interim solution is to occasionally re-encrypting the entire folder at the command line using this command:

cipher /E /S:c:\User\XYZ\Dropbox

After which I am supposed to run this command for good measure (I understand this command wipes the free space on the whole C: drive):

cipher /W:c:\Users\XYZ\Dropbox

It is recommended that you exit Dropbox during this process to free any file locks it may have (don’t forget to start it back up afterwards).  This is my first experience with the cipher command, but it appears to work.  It would be nice to be able to stop and start Dropbox from the command line as well, but I haven’t found a good way to do it yet.

I contacted Dropbox support, and they recommended that I just use volume-based encryption (like TrueCrypt) and avoid Windows encryption altogether.