TrueCrypt (TrueCrypt - Free Open-Source On-The-Fly Disk Encryption Software for Windows 7/Vista/XP, Mac OS X and Linux
) is an excellent encryption app that handles volume files and partition/disk-based encryption. It will encrypt your system partition on the fly as well. While it's true that losing your password
will prevent any and all access to the encrypted data (since there's no backdoor of any kind), possible data corruption due to errors is limited to one HD sector at a time, and Truecrypt offers (actually forces you) to write a rescue CD with the volume key and encryption headers that are specific to your system. But again, you must remember the password you choose - without it, even the rescue CD will be useless (which is by design).
But to say that one single corrupted bit will make the entire volume useless is not correct.
Edit: Obviously malware can affect any encrypted volume just like any regular volume as long as the encrypted one is mounted and visible to your system. But once dismounted, it will just show up as a 'raw' (unformatted) partition - the data could still be deleted or destroyed but nothing can be read and stolen from it.