Jailbreak and iOS ‘hardware encrypted’ data

My earlier answer was incorrect. iOS 4 does incorporate file system level encryption - impressive!

The answer to your question is here:

It is important to understand that GoodReader itself doesn't encrypt or decrypt your files. It does two things - restricts the access to protected files via GoodReader's own user interface, and asks iOS to encrypt certain files (or all of them, if you're using app startup password). iOS, in its turn, locks these files within a few seconds after you lock your device with a passcode, and instantly unlocks them when you unlock your device with a passcode. It means that when you unlock your device with a passcode, all your files become decrypted and fully accessible, even if GoodReader app is not being run at the moment, and you haven't entered any of GoodReader's passwords yet. So, if your device is unlocked, GoodReader will prevent the access to protected files via its own user interface, but nothing prevents from copying these files via, for example, File Sharing section of iTunes (USB transfer), without knowing GoodReader's passwords. So please be sure to ALWAYS lock your device with a passcode, even if you leave it just for a minute. This will turn the physical hardware-based protection on. And while Auto-Lock option in main device Settings may be of great help with this, it never hurts to manually lock your device every time you leave it.

From:

http://www.goodiware.com/gr-man-general.html#dataprot

Put concisely, while the iPad is unlocked all data is unencrypted, so in principle, hackers could access your files during this time.

Currently there is no jailbreak for devices with A5, A5X A6, or A6X chips; Tethered or Untethered. This means we need to be patient for the Chronic Dev Team to complete the jailbreak for the IPhone 4S, 5, IPad 2, 3, 4 and Mini. Do not be fooled by any site that aims to have it available. Most of them charge and may actually be viruses.

Check http://www.redmondpie.com for any updates. They will have realtime updates as to the status of the progress / release.