
Indeed, it was well-known in the last millennium. Afaict, not having read it yet, the paper shows it happening.
Problem is, it isn't at all easy to solve.
You can put the OS on a write-only medium like a CD, so the temp etc files get erased - but if you put eg your home folder on the drive then there will probably be files relating to what you have done.
If the home folder is exposed, eg if it's on a visible TrueCrypt partition, then the Police may demand the keys to that partition using a RIPA s. 49 notice - and the information in those files may contain links or data, or even show that a file has been saved somewhere, suggesting the presence of a hidden partition.
Suppose instead that the OS is on CD and you arrange things so that you can only store files into the "visible" (where "visible" means the partition whose keys you give up on a RIPA demand, or under torture) and hidden partitions deliberately, rather than letting the OS create files for you.
Still doesn't work reliably.
TrueCrypt hidden partitions are usually at the end of the TrueCrypt volume. The volume is going to be stored somewhere, probably either on a hard drive or USB fob.
The problem then is that, if you store files in a hidden partition, the data at the end of the volume will be written to more often than if you don't. Modern hard drives have such high data density that it may be hard to recover overwritten data - but it's still easy enough to tell that data has been overwritten. If bits at the end of the volume have been overwritten more often than parts in the middle, or the part containing a persistent file, the interrogator may ask why, and conclude that a hidden partition exists.
USB keys are much the same, except worse - the load-levelling they use makes it easier to tell how many times a part of the filespace has been overwritten.
There are theoretical solutions, but they are all very expensive in terms of bandwidth and computation.
For instance the first Anderson/Needham/Biham construction works if you first fill it with random data a few times and don't use Larson tables, and I have an unpublished construction using universal re-encryption which works (not the one accepted for PET07, that doesn't work) - but both are horribly expensive.
I'm working on (I'm a cryptologist with a special interest in deniable/steganographic file systems) a better construction, but it isn't ready yet (see www.m-o-o-t.org )