Mac OS X’s PDF encryption still uses 128-bit RC4 which is compatible with Adobe 5.0 and later. 128-bit RC4 is a weak encryption algorithm and people generally don’t recommend it. I use Adobe Acrobat X to encrypt my PDF files instead and choose the strongest AES256 algorithm compatible with Adobe Reader X or later. Note that there is AES256 encryption in Acrobat 9, but it has security flaw which makes it easier to brute force passwords than Acrobat 8.
Today I tried to open a password protected pdf file with AES256 encryption on my Dropbox website and now it can be opened directly from the browser without downloading it first by entering the password on the web interface’s dialog.