Microsoft is working on a new Windows Azure service through SQL Azure Labs, called Trust Services. It is an application-level encryption framework that can be used to protect sensitive data stored on the Windows Azure Platform. By using Trust Services you can store keys, authorizations and encryption policies in the cloud, and use them to encrypt and decrypt sensitive data.

Trust Services provides a API that simplifies the development process and enables easy integration with data driven applications.

Check it out at Microsoft Codename "Trust Services". We are looking forward for your feedback.