I live in a small town and I know my ISP in person. I don't like the idea he can read all my unsecured communication (if he wanted to do so). I know I can use a VPN tunnel such as SecurityKISS.com to hide my communication from him.
Are there any risks in doing so? Am I going to draw attention to myself as a potential terrorist, child pornography consumer or something similar which I am not?
If the VPN is untrustworthy they can read your traffic instead of your ISP. Whether that's an improvement or not is up to you really! Can't say I've heard of the one you linked, and this isn't the place for product recommendations, but have a shop around for a trustworthy VPN provider. Or alternatively pick up a cheap VPS (a server you can run yourself) and follow a guide to set up a VPN service on there, and have your own private one.
Can an ISP log which traffic is encrypted? Yes. VPN protocols have flags for encryption. It's trivial to log or block traffic with these flags.
Will they be likely to expend the resources on logging the fact that it's encrypted, and this person notice it, in a small town? Probably not, unless you're creating other problems such as high bandwidth usage.
If they noticed, what would they do about it? Many people use VPN for work, so unless they analyzed the destination IP, maybe nothing.
Might someone upstream, with more resources, in law enforcement or surveillance notice? Might they have jurisdiction or agreements with the VPN provider to surrender your logs and even packet captures? That's a separate question that has nothing to do with your ISP, but you might consider it a risk.
Depends largely on motivation: whether you're a person of interest, or have activities of interest. Since many hackers will use VPNs (despite that not everyone on a VPN is a hacker), it is an activity of interest to law enforcement. Their ability to access to monitoring it depends on where you are, where the VPN servers are located, etc. Doesn't mean they couldn't make your life difficult purely by lawyerly harassment. I don't know what your relationship is with your ISP guy. Obviously investigative annoyance is not the most common scenario, but anything is possible if you annoy someone with connections. Arguably socially engineering, er, making friends with the ISP could be the better option.
The only risk is that the VPN company might keep usage logs on your activity. Read the VPN's privacy policy. Other than that, some people might think you are up to no good, whilst others will agree with the use of a VPN on the principle of ones right to privacy.
