When you copy your wallet file on the TrueCrypt volume it is encrypted on the hard disk but you can still access it unencrypted as long as your volume is open. You should use the -datadir option to tell Bitcoin to use the folder in your encrypted volume.

But the best way to protect your wallet is to use the bitcoin version proposed on GIT which encrypt with AES your wallet and ask for your password (it is not integrated yet in the official version). TrueCrypt is good for your backup but if you keep the volume open this won't be more secure than having your wallet in your regular directory.