Hello, im noob regarding networking, i want to ask if connection via Tor network (Vidalia) is non readable, fully encrypted including headers?

Also i want to ask if there is used so called Tunnel in Tor. Or there are many requests?

Update: i read there that the data are encrypted from first relay node to the exit node where are decrypted in case im connecting website via HTTP (not via HTTPs), so exit node owner can read my sensitive data like passwords. Not sure how is that with encryption:
mycomputer <-> first-relay-node/entry node.

So the Tor is for anonymity, but not for privacy, i would guess its even more dangerous for privacy than using direct connection.