You can use Fuse to encrypt files on the fly using a wide assortment of schemas. The trick is to make it available at the right time to all the desktop apps (as the environment is starting up).
All of this is available already, for example I’m encrypting the files I sync to Dropbox and I mount the decrypted version to a dir on my desktop on startup. It’s not the entire home dir but you get the idea. It’s just gonna need some polish to become really smooth and user friendly.