I can confirm this bug.
I use LUKS with ext3 on Kubuntu Feisty.

When I have moderate disk activity the system is almost unusable.
I think this is a scheduling problem. 
Although extra computations are needed when using encrypted filesystems, these 
extra computations should not have such a high priority that it should be 
impossible to use the computer for audio, video, moving the mouse around, etc.

I have a 1.8GHz  Pentium M processor. That should be enough to handle
the extra computations needed for the encryption while decoding ogg
audio or playing video.

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Write load on DM-Crypt LUKS partition with reiserfs jams system
https://bugs.launchpad.net/bugs/82528
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