Okay, now it's working. I ran some tests again.
Creating an image with DU doesn't run a full backup. It just creates a 'shell' for lack of a better word. Then you can use SD! and perform a Smart Update.
Seemed to work. I couldn't get to the files w/o knowing the password. And I mean any of the files. You're not just kept from the Home area but the entire image. That's way better than before.
I did a restore to another partition on an external drive and booted from it. If that had been my new HD it would have put things back like they were at the time of backup. And it's secure. Is that too much to ask for?
I didn't use the KeyChain thing as I don't understand it yet. I don't mind running things manually for now. It works! That's all I care about for the moment.
Sorry to be such a thick headed bother and thanks for your help.