I also highly recommend TrueCrypt which is free. It provides the highest level of encryption available, same as used by the government for top secret stuff. It is as unbreakable as you can get if used correctly. The only way someone could get your encrypted stuff is to crack your password which would be virtually impossible if you create a strong password and as an extra precaution use "keyfiles" with it (another feature of TrueCrypt). It is slick and highly sophisticated yet very easy to use. You just need to spend an hour or so carefully reading the well written user guide that comes with it so you fully understand its capabilities and how to use it.

With TrueCrypt, you basically create a file (you specify the size) which will be a "container" for a password protected encrypted volume which TrueCrypt allows you to "mount" by entering your password. Once mounted, the volume is unencrypted and behaves and is seen by the OS or programs as another local drive in your system. You can access stored files on it and save new files to it up to the size limits you specified when you originally created the file/container. When you "unmount" it, (a one or two click operation in TrueCrypt), everything in the volume is again encrypted and vindows no longer can see the volume. The only thing windows sees is the file/container, which is fully encrypted and can't be read, unless and until the volume is mounted again by entering the correct password in TrueCrypt.

Pointsec
 

I have this on my work computer (laptop). It apparently is one of the best out there, but I unfortunately don't know if their "lite" version is truly free, (as you have to register to find out and I already have it). Here's the link, in case you are curious.