The tarsnap client does the encryption. The server never sees plaintext. I think it's reasonable to consider the tarsnap protocol as adequate separation, since

The tarsnap client does the encryption. The server never sees plaintext. I think it's reasonable to consider the tarsnap protocol as adequate separation, since an error on the server wouldn't be able to leak customer data (except for stats about size and access patterns, perhaps, but that could happen regardless of how the data is chunked together).