If you have FileVault enabled to encrypt your home directory, upgrading to Leopard gives you a scary warning:
Time Machine backs up home folders protected by FileVault only when logged out. You cannot browse items of the protected home folder in the Time Machine backup. Because you cannot browse the items in the Time Machine backup, you cannot restore individual items.
If you upgrade to Leopard with FileVault turned on for a user, their encrypted home folder will be left in the Tiger format (a sparse disk image) rather than the new Leopard format (a sparse bundle/package of many small files, called "bands"). The old format is very inefficient, because a copy of the entire home directory will be saved each time the user makes the smallest change to any file within it. Convert to the new format, before using Time Machine, by turning FileVault off and then back on for each user needing FileVault.
If you don't have enough free disk space to do this, you'll have to copy the user's files over to a backup disk, trash them in the home directory, empty the trash, log the user out to recover the disk space, log back in, turn FileVault off and on, copy the files back, trash the copies, and then use Secure Empty Trash in the Finder menu.
Once you have the home directories converted to the new format, you can turn on Time Machine in System Preferences, and it will begin backing up all files to the connected disk except for those users who have FileVault turned on and are currently logged in: they will have their files backed up when they log out. In other words, users will have to log out faithfully in order to have their files backed up, which may be a change for some users. Logging out is also good practice because a user's files have never been very secure against unauthorized access when the user leaves themselves logged in.
If you need to restore files in your encrypted home directory, the Apple warning is correct in that you can't use the Time Machine application's 'galaxy' interface to do so. However, you can restore them using the Finder.
Double-click on your backup drive, and you'll see a folder called Backups.backupdb. Double-click it and you'll see a folder with the name of your machine. Double-click that, and you'll see a bunch of folders named with dates and times. Double-click the one from which you want to restore the file(s), and double-click your way down through your startup disk name, then Users, then your username.
You'll then see a package called username.sparsebundle. Double-click it, enter your login password, and a copy of your home directory will mount. You can drag files off of this copy -- just don't drag any files onto it or delete any files! After you are done, eject the mounted home directory to avoid confusion. There isn't any reason that Apple couldn't automate the restore process; apparently they ran out of time when releasing version 10.5.
Mac OS X Hints
http://hints.macworld.com/article.php?story=2007111404402514