DigitalOcean is fine. I'd recommend them more now that they've dropped their prices than I would in the past. If you're going with a VPS then you need to read up on security so you don't get pwned.
You probably want at least 2 GB of RAM. 1 GB might work but keep in mind that it also needs to support the entire OS too.
On a reputable host your files are safe. You don't need to encrypt them unless you're really paranoid, and if you do go that route you can't store the key on the server or it'll defeat the purpose.
