Even if it turns out to be leaky, it could still be a big deal: I think it's fair to say that the greatest cloud risk isn't actively and persistently hostile providers - mostly because that sounds like an almost hopeless task. A more realistic risk is that via a VM-breakout or other hack hostile code manages to run on the hypervisor or to at least indirectly influence the hypervisor and other VMs. And
that kind of code may well be harder to exploit with even slightly leaky encryption. A hacked hypervisor may not be entirely under the control of the hacker; or breaking the encryption may cause side-effects (such as instability) that causes watchers to take note; or it may simply be quite complex and require case-by-case exploits that are generally impractical.
Even a less that perfect protection from the hyper-visor may still have some value.
I'd be more worried about the performance overhead, personally - I can't imagine using this if the impact is significant, and it seems like it almost has to be.
