The best way to examine this kind of setup is to consider your attack scenario. There are two main ones that I can think of:
- An attacker has access to your encrypted device, and is attempting to brute-force the password or key.
- You are being forced, either by law or threats, to divulge your password.
Your nested encryption doesn't really solve either issue.
If the attacker can break the password on the TC volume, you're either using a bad password or they have the resources to attempt a ridiculous number of passwords per second. This only means that you're giving them a second volume to crack, which just doubles the attack time rather than providing any significant protection. You'd be better off just using a better password on a TrueCrypt volume.
If you're being forced to give up your password, you certainly wouldn't be able to get away with giving up the TC volume password, but not the inner FreeOTFE volume. Again, no benefit here.
The only differences I can see are the following:
- If a flaw is found in the cryptographic mechanisms in either piece of software, but not both, you still retain a reasonable expectation of security.
- You increase your attack surface for various local vulnerabilities slightly, in the case where untrusted files are placed on the internal volume. This is unlikely to be exploitable, but it's worth thinking about.
- The two systems are not designed to work in unison, which might lead to interesting specially-tailored attacks. For example, having a block encrypted by one piece of software and then another might result in a timing attack, or other side-channel attacks.
My advice would be to stick with TrueCrypt and just use cascaded ciphers and a decent password, which gives you reasonable protection against vulnerabilities found in any single cipher.