It's always good to hear from an expert, especially an accurate one.
This article in The Register talks about "really secure" email service versus "almost secure" email service, using Lavabit as an example. Lavabit provided somewhat secure email service in that all emails were encrypted with a hefty secret key. But each key was itself stored on the email server, and encrypted with the owner's password.
Thus, the email messages are unreadable as long as a bad guy doesn't intercept the password.
To retrieve email, the site collected the password from the user. Then the site itself would decrypt the secret key and then decrypt the email. If a snooper (be it a dishonest employee or someone with a court order) wants to intercept mail, they simply have to intercept a user's password.
As the expert says: the really secure sites don't handle the readable data (plaintext) at all. The encryption and decryption takes place on the user's own computer. The server only sees the encrypted data (ciphertext).