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There are some filesystem/full-disk encryption programs that claim they can get around this. Apparently (I've never used it), if one is required to provide the adversary or authorities with the passphrase, they only get so far - into the virtual disk, which then presents the illusion that there is nothing else on the disk, further claiming their product makes it literally impossible for them to detect the real contents of the partition... I'd name one of the programs here but I'm generally uncomfortable with listing links to products in forums like this- it's almost spammy like (it's a popular utility and came up when searched for hard drive encryption).

Yes, plausible deniability is possible. Look at Off-the-record messaging (http://en.wikipedia.org/wiki/Off-the-Record_Messaging) for an example. Cipher texts is these system can be decrypted to anything you like --- not only the real plain text.

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