Will hard disk encryption protect me from network attacks?

Yes and no.

While encryption is a powerful tool in your security tool box, it's not a
replacement for good network security, or any number of other important
security measures for that matter.

We need to look at exactly what is, and is not, protected when you have, and
when you use, encrypted data.

The rule is actually quite simple: encryption prevents access to the
encrypted data unless you have the key.

Let's say you have an encrypted file on your hard disk. Assuming you've used
appropriately strong encryption, then if someone steals the computer they would
not be able to see the contents of that file.

The same applies if your network or machine were compromised ... if all the
intruders gain access to is the encrypted file, then they still have
access to nothing since they can't see what's inside.

However...

Encrypted data must be decrypted in order to be used. So what if you were
using the data at the time the network breach occurred? Or while you had some
kind of malware infection on your machine?

Then, to put it bluntly, all bets are off.

I'll use a TrueCrypt volume as an
example. When not in use the volume is just a file full of encrypted data that
no one but you, using the corresponding passphrase, can access. In order to use
a TrueCrypt volume, you must supply the correct passphrase when you mount it.
Once mounted its contents are then visible to you as unencrypted
data.

And therein lies the problem: if you can see it, then a successful attacker
could see it. If there were a network breach while you had your encrypted data
mounted and visible, that data could be accessible to a remote attacker.

And, in my opinion, it actually gets worse if you rely on whole-disk
encryption of your system drive.

With whole-disk encryption, the hard disk is completely encrypted including
not only your data, but all your programs and even Windows itself. Before you
can even boot your machine you must provide the proper passphrase to decrypt
the drive.

That's actually pretty cool protection if the machine is off. Someone can
walk away with your laptop and the entire hard disk is simply so much encrypted
noise to them.

The problem, as I see it, is that if you're using your machine then
everything is being decrypted and is fully accessible. A malicious network
based attack could once again have access to everything.

That's why, personally, I don't use full-drive encryption. My
approach is actually to encrypt what should be encrypted, and thus only have
that data accessible while I need it. When not in use the encrypted volume is
not mounted, and hence inaccessible to not only myself, but any
possible intruder as well.

And that's truly the bottom line: if you can access the unencrypted
data, then a security breach in the form of a network attack, spyware or other
malware, could also allow an attacker to have access.

The lesson is simple: encryption has an important role in security, but it's
no substitute for the rest of the package: having a firewall, using
anti-malware scans, staying up to date, and being security conscious as you go
about your day.