With an online backup you only really want to back up your actual data. If your computer were to die, most of what is on it (Windows, Office, etc) would need to be reinstalled from the CDs anyway. So there is really no point in backing that up online.
When you install the backup software it...
When you register for the Data Deposit Box service you choose a password. This password serves as a seed to generate a much longer encryption key. This key is then stored encrypted in your PC's registry. This key is used to drive the 448 bit encryption that protects your data.
Also note that...