Very true all this data has to run through your ISP so their is still potential for either data corruption or some other form of security breach.

I have only scratched the surface with tor, does anyone know what cipher they are using for communication between hosts or are they ment to be vpn like tunnel's

To be really secure they should be using 3DES or AES with a bitchin long key, but of course if a lot of data has to be encrypted then this will take a while on slower machines.