Encrypted, sparse disk image stored on WebDAV server: problems mounting

My goal is to have secure, encrypted storage to back up my computer to a remote site. The remote site is an internet hosting provider who provides a lot of disk space and bandwidth, and also serves up WebDAV, for a very small price.
I have created a 100GB sparse disk image, with encryption, and stored it on the remote server. I then mount the directory containing the sparseimage (which is itself password protected using .htaccess) using WebDAV. My plan is now to mount the disk image, and use rsync to copy changes on my computer to the disk image.
This worked perfectly when I tested with a small sparseimage. It was interesting how the OS seems to buffer the changes in chunks: rsync appears to be copying a lot of files super fast, then it stalls as network bandwith suddenly throttles up for a while, and they take turns this way.
Unfortunately, after copying a few hundred MBs into the image, I am now having trouble.
First, when I try to mount the disk image, I see an enormous amount of data start transferring over the network. It literally saturates my broadband connection for at least an hour (I haven't been able to go longer yet). It seems to first download at top speed for a while, then switches to uploading at top speed for awhile. During this time, I notice that a mount_webdav process is consuming large perentages of CPU. However I can't see anything else going on at this point -- the disk image isn't mounted yet, all this thrashing seems to be from the process of the image trying to mount.
So first question: is this normal? Does anyonw know what actually happens when you issue "hdiutil attach" on encrypted sparse images? Does it have to touch and read through everything in the image once or twice? Maybe this is just a Bad Idea™
Second: the webdav server always ends up getting disconnected during this process before the image actually gets mounted. Do you think I'm trying to do something that tests, and exceeds, the limits of WebDAV?
Thanks a million for any help!
PowerBook, 1.33 GHz G4, Aluminum, 17"   Mac OS X (10.4.8)   The remote server is Debian

A follow up to my MS word document. I found that I created the file in MS word 2000, and I used the Apple File Security for OS 9 to encrypt it. I can't remember the password, and I do not find anything in the key chain listing.
I have Pages 08, but I don't think I can use it if I can't remember the password to unlock this old document. Is there a program to decrypt this without a password?
Thanks,
DaisyMay

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