The solution: using TrueCrypt or any similar program, encrypt the entire drive, and then (still using the encryption program) create a “hidden” encrypted volume on the drive for things you don’t want just anyone to find. “Decrypting” merely means you have given the “key” to the processor so it can interpret the encrypted data on the drive. The drive is not suddenly readable to all. The “hidden” volume will look the same as empty space on the drive. Since it is indistinguishable from empty space, there is no way for the government to prove you have anything hidden on the drive.
This should, in theory, work. However, there is always the possibility that the government holds “back doors” to the publicly available encryption algorithms that will allow them to detect any double-encrypted files. Also, this will not guard against them “unwinding” the encryption, though whether that would reveal any hidden volumes might be debatable.
Truecrypt is open source, so the the possibility of back doors is just about non-existent. It sounds like you are suggesting they may have cracked the encryption, which may well be possible. Also, while I know they say the inner volume appears as empty space I don’t put a whole bunch of faith in that. The FAQ on that is here, in case anyone is interested:
http://www.truecrypt.org/docs/?s=plausible-deniability