[dnanian]

You cannot boot off an image, password protected or not: it must be restored to be started from (see the User's Guide).

You could, of course, install Leopard on an external drive and create a protected image there as well. It would likely be faster to restore from a 'real' Leopard install than from the CD/DVD.

FileVault has additional issues: since your user files are stored in a big encrypted image, it's not easy to access the files unless you start up from the backup, and since you'd have an image backup, you'd be doubly encrypted.