So apparently you can encrypt external hard drives in Lion, however unlike enabling FileVault on the primary partition, it seems you need to actually reformat them to do so.

Note also that the disk needs to use a GPT rather than MBR, and Lion converts it to Core Storage in the process.

It’s also kind of cool that when you mount it, Lion allows you to store the encryption password in your Keychain (in the same manner as for encrypted disk images), allowing you to effectively use the drives seamlessly with your home Mac while still keeping them safely encrypted should anybody else get their hands on them.