Encrypt the phone's internal storage Is there a way to encrypt my phone's internal memory, in the same way you would encrypt a computer's partition? 

Ideally, the phone would always ask for the password when booting, and even if someone had physical access to the phone and plugged it into a computer, this person could never see what's inside the phone unless he/she knew the encryption password.

I'm looking for a way to encrypt the internal storage only (that's where the sensitive data is kept). Encrypting the SD card is nice but not necessary.

Running eclair on a motorola milestone, and I'm willing to root it if necessary.

Note: I know that there are security related apps that offer to remotely nuke the phone. I also know that this might seem exaggerated and tin-foil-hatish to some people, I'm just a bit of a security freak. :-)
Android 3 (Honeycomb) offers full system encryption natively.  However, as it's only for tablets at this point I will post some other avenues.

There was some work done on this for the G1 using LUKS and Cryptsetup.  I think I've seen this on a moto droid rom too, but you'll definitely need root.  It is not trivial to do, and there isn't too much interest so popular roms like Cyanogenmod don't provide for this natively.  

There are some apps in the market that support encrypted file stores (check out Lock Files). I have no idea how transparent that is on the system however. 

To your italicized point on remote wipe.  There are MANY solutions for this.  If you're using Exchange you can push this with ActiveSync, if not apps like Lookout, and more provide remote wipe and other functions.  There are even manual ways w/ dyndns and a listening SSH server.

Hope I was some help.