And there's the catch. You may indeed be using your KEY, but you are using THEIR ALGORITHM. Good encryption requires both a strong key and a rock solid algorithm. And the algorithm should be open source so anybody and everybody can review it. A strong algorithm does NOT depend on secrecy for being strong. For all you know, the service providers algorithm may be nothing more than "take the first character of the users key and prepend that to their data stream". Of course that's a silly contrived example, but it illustrates my point.

Also, if they use a proprietary algorithm, and then they go out of business, how are you going to unencrypt your own data (unless you stored a second copy elsewhere for your self)?