If I can use E2EE, I will. This VPS will never be exposed to the internet, it will only be accessible through Netbird. The main reason for setting up FDE is for Immich which doesn’t support E2EE, so that the data won’t be (as easily) recoverable should the VPS be recycled. But yeah, it’s not perfect, but like you said it’s better than nothing.

I don’t really take physical access (including Hetzner and law enforcement) into account in my threat model.