BWS uses both encryption and obfuscation, plus it allows you to configure its behaviour: you can show a different image, print a 404 error or redirect to a website when an hotlink has been detected. You can also configure the expire time (in seconds) of the media you are protecting! At the moment, we have a different homepage for BandWidthShield - hotlinking protection : you can download the manual to have a better understanding of this software.
However, since July 2010 we've released BWS as opensource, giving him a new name, Hotlink Shield: its official website is now hotlinkshield.com.