This is not a question  for SharePoint, per se. SharePoint keeps ALL of
its content in SQL, all of it. This is really an SQL question.

Fortunately SQL has an answer. The Enterprise edition of SQL 2008 has a
feature called "Transparent Database Encryption" (also called TDE) that
is exactly what you're looking for. It encrypts everything to do with
the database starting with the page buffer and all the way through the
transaction logs, the data  files and backup files. Every step is
encrypted. You can search about it online, or I also cover it in a
chapter of my latest book,
www.amazon.com/.../d
p/1584506016?ie=UTF8&s=books&qid=1222955240&sr=8-1&tag=todklisblo-20&lin
kCode=ur2&camp=1789&creative=9325

I found out that the client is upgrading to Sql Server 2005. Is that an issue ?

SQL 2005 does not support  TDE. They will need SQL 2008 if they wish to
use it. There may be other ways to get encryption  at rest, TDE is the
only one I've ever used.

There aren't any other supported methods for SQL Server - all of the
available encryption  options I've seen for SQL 2005 require schema
changes and therefore won't work with SharePoint.