The area on the SAN occupied by your disk contained a simple disk image. When your image is deleted and another is created overlapping the same spot on the host storage, they can look at their free space to see the contents of your disk.
If your disk happened to be encrypted, their free space would appear to contain garbage data.
Encrypting your disk would do you little good versus your provider if your VM can boot without your intervention... someone could just boot your VM to look inside.
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Full disk encryption is unlikely to protect you from anything other than custody issues at your hosting provider.
The idea behind this exploit:
The area on the SAN occupied by your disk contained a simple disk image. When your image is deleted and another is created overlapping the same spot on the host storage, they can look at their free space to see the contents of your disk.
If your disk happened to be encrypted, their free space would appear to contain garbage data.
Encrypting your disk would do you little good versus your provider if your VM can boot without your intervention... someone could just boot your VM to look inside.
Nothing you can reasonably do protects against a malicious (or compromised) provider; these are all controls that protect against provider mistakes.