Like the heartbleed issue, the encryption is fine. It's everything around it that's the problem. LUKS works fine at rest and as a walk-away disposal tool. When you're mounted however, everything is wide open from inside and out. The only redeeming quality of full drive encryption on a VPS is that you don't have to worry about your own swap, but any time you've requested a live migration or any other snapshot has come close to your VM, then what's the point.
In a way, there's two sets of people you're guarding against. The opportunist that's rummaging through old hard disks vs the rogue admin. To the OP who's storing website backups or something, just gpg encrypt the tar files as you're backing up. No leakage and it addresses both.
Full drive encryption in a virtual environment is really just a media disposal problem, which only addresses the opportunist.