I regularly get consulted on various web application security issues and defensive strategies. One of the recent "frequently asked questions" is around database encryption of web application. My answers to these kind of questions usually lead to awkward looking faces. I always start off asking more questions about the requirements, "Who are you trying to protect the data from?" and "What data are you trying to protect?" The answers to those questions are usually good indicator whether the person is on the right path or not.
In most cases, database encryption does not prevent the hacker from accessing the backend database via an application compromisse. The reasoning is very simple. If the web application needs to be able to access the data for normal operation and hackers are able to compromise the application, the hackers can essentially access the same data by controlling the applicaton (attacker owns the application). Encryption does not prevent a hacker to access the backend database if the hacker can control the application.
Some may argue that if the database encryption is per user based, then one user's compromise does not lead to compromise of another user's data. That is very valid but that usually requires authentication of the user to some backend pieces (or the database itself). Maybe authentication alone is sufficient for the security requirement? The database can provide access control based on user's identity so one user's compromise does not lead to access to other user's data.
You might think I am an anti-encryption person. The fact is - I am not. Encryption totally has its place for web application security reasons. Asymmetric encryption usage to protect data that is "one way" in nature is a good example. As a retail store trying to store the user's credit card details for recurring monthly payment, the data should be encrypted with asymmetric encryption so that the Web frontend can never read the data back but another party with another related key can. Also, there are numerous other scenario where encryption should be used, such as backup, protecting against rogue DB administrators and against physical theft of database machine.
I often recommend a threat risk assessment before deciding on the database encryption solution. That would allow you to quickly understand the threats that affect the web application and also possible countermeasures that can help protect against the threat. Due to the cost of deploying and maintaining database encryption, I am seeing very limited deployment of database encryption, most folks tend to turn to other alternatives for risk mitigation.
Encryption is a useful defensive technology that can help protect the web application but it is not a silver bullet, blindly deploying it may not address any threats that you are trying to mitigate. The managers and auditors tend to request these technologies to be deployed to defend against web application compromise after seeing another competitor getting compromised thru web application security flaws (eg. SQL injection). Encryption is likely not the best choice of defensive technology given the scenario.