I've never used such software thus far but I'd say it depends on the cipher's mode of operation. If you're using ECB mode, you'll lose at most the sector that got damaged. But you shouldn't use ECB mode if the size of your data is more than the block size of the cipher.
If you use any chaining mode such as OFB, you risk losing a sector in the aforementioned block, plus all other blocks that come next.
Good block Bad sector X Propagated err
|--------------| |-------X------| |xxxxxxxxxxxxxxx| ...
that is, the error might propagate to the next encryption block and contaminate the rest of the data. This is true regardless of full-disk or file-by-file encryption.
By using CBC mode, you merely lose the corresponding sector in all following blocks
Good block Bad sector X Propagated err
|--------------| |-------X------| |-------o------| ...
^
due to previous bad block
It's not all doom and gloom though. I think respectable disk encryption software have countermeasures against this sort of thing happening, such as keeping a CRC32 checksum somewhere. Do check the software's wiki (or forum or customer service if you go non-free) to see how they handle this sort of thing.
Update:
From the TrueCrypt documentation:
Some storage devices, such as hard drives, internally reallocate/remap bad sectors. Whenever the device detects a sector to which data cannot be written, it marks the sector as bad and remaps it to a sector in a hidden reserved area on the drive. Any subsequent read/write operations from/to the bad sector are redirected to the sector in the reserved area. [...]
which suggests your filesystem already takes care of these things.
But let's assume it doesn't. As kronenpj pointed out, most disk encryption (at least the popular ones) work with XTS mode, which is an enhancement of ciphertext stealing. That mode is a bit complicated to represent in ASCII, the linked Wikipedia page has a nice depiction of the process.
And here comes the tl;dr: Error propagation (in the absence of corrective measures) depends on whether the software treats plaintext as single blocks, or chains them together.