Seen this at least a decade earlier with Hushmail. If you use the Java-enabled version of their service, encryption takes place on the client. The private key does reside in Hushmail's servers but it isn't decrypted on-site as long as you're using the Java-enabled version of the service.
Sure, the client code is stored on the server and could be tampered (and this being the NSA, they might even have a valid cert to sign their tampered code as well) but the logic's there.
What this MIT stuff does is something I've already done at least once for secure cloud storage. Somewhere on my 'land of dead project code' I have a piece of Java code that uploads stuff to Rackspace's Cloud Files storage but encrypts it in-transit and adds the key to metadata … said key is encrypted with someone's public key. Thus the data can be only decrypted by someone who has the corresponding private key. The concept isn't groundbreaking at all and anyone who is security conscious has been doing this for years. At least one employer basically crammed sensitive data inside a TrueCrypt portable drive and uploaded that to the Cloud Storage service du jour.