I think that carrying that kind of information on you at all times could be really dangerous. Even if it is encrypted. I have a few friends that can break into encrypted information in a hour or less. To me thats just asking for your identity to be stolen. No matter how secure a computer or software is there is always someone out there that can break into it.
I assure you, your friends cannot crack real encryption. With a long enough and random enough pass phrase, 256 bit AES is uncrackable.
DO NOT rely on the silly U3 stuff that comes with Sandisk flash drives. Check out Truecrypt