The A5/1 algorithm used in European GSM cell phones has a 64-bit key, but can be broken in the time it takes to brute-force a 30-bit key. This means that even though the algorithm is given a cryptographic key with 64-bits of entropy, it only makes use of 30 bits of entropy in the key.
Another flaw, more computer related, is that some crypto products may say they take a 128-bit or 256-bit key, but the entropy is based on the user selected passphrase. A general rule, passwords have about 4 bits of entropy per character (Ex- 10 character password (ASCII std. English) is equivalent to a 40-bit key).
Just because an algorithm says it accepts 128-bit (or higher) keys does not mean it has 128 bits (or higher) of entropy in the key. In my opinion I would not trust any proprietary algorithms by any manufacturer or entity besides the well funded military/intelligence community. It simply takes years to evaluate an algorithm and if it's proprietary then those companies do not have the necessary resources to properly judge their algorithm to be free of any flaws or weaknesses. No single company, outside the military/intelligence community, has the financial resources necessary to evaluate a new cryptographic algorithm or to correct design flaws out of highly complex protocol. This is why you have seen some previous encryption schemes broken like the GSM phones, Older versions of O/S's/browsers (Netscape Navigator 1.1, Windows NT, Word/Excel 2000/2003). Supposedly, MS Office 2007 is supposed to fix the flawed 128-bit encryption for passwords in their previous products. For instance, I could put a password on one of my MS Word 2003 doc's (8-16 characters) and try to brute force it, but that could take several days, however I was able to brute force passwords of up to 6 digits in under three minutes. Or I could just connect to a password crackers server and crack the password instantly. I am in the process of converting my older files to MS Office 2007.
A library of information could be written on the topic of good and bad encryption...