Marc, thank you so much for pointing to loop-aes-utils as the culprit. I
can confirm that after removing the loop-aes-utils package from my
Maverick AMD64 system, and re-installing the latest libfuse and fuse-
utils updates, I can mount sshfs and TrueCrypt volumes.

@Søren Weber:
losetup -a
will show you the loop devices set up on your system. For example:

# losetup -a                                                                    
                                                                  
/dev/loop5: [000e]:14986 (/dev/md1) offset=4096 encryption=AES128 multi-key-v3  
                                                                               
/dev/loop7: [000e]:14954 (/dev/md0) offset=4096 encryption=AES128 multi-key-v3  
                                                                               

shows 2 loop-aes devices in use. You can tell they are are loop-aes
devices because of the "encryption=AES128" string. In case you see such
devices, you need to keep loop-aes-utils. As a counter-example, on my
system using 1 TrueCrypt volume and no loop-aes devices:

# losetup -a
/dev/loop0: [0902]:20 (/mnt/sdc1/encrypted.tc)

Much more info about loop-aes is available in the README files at
http://loop-aes.sourceforge.net/

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https://bugs.launchpad.net/bugs/727220

Title:
  Command "fuse" returned error 1 (with TrueCrypt)

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