Yes, encrypted. If it's swapped out to disc, it will have to be encrypted. If you stream a movie clip to your GPU, it will have to travel over the PCI-bus encrypted (with a 2048-bit key exchange!). Microsoft/the MPAA/the RIAA does not trust you with your own data.
This scheme kicks in if there is "premium content" present. So if you have a HD-clip somewhere on your harddisk, all your movie clips will be downgraded.
There is an interesting article here what kinds of brain-dead things Vista will require, and the added costs that will entail, and how the consumer (that means you and me) will have to pay those costs. Basically, hardware will become more expensive so that an MPAA executive can remotely brick your motherboard.
Think about that for a moment. Somewhere someone exploits a bug in a driver for a device you are also using, someone in Redmond hits a switch, and suddenly that device will stop working as intended. If you then swap out that (defective by design) device for another one that has not (yet) been compromised, the WGA-protection of Vista will kick in, potentially requiring you to purchase a new license.
Some people really need to re-think their priorities. And if they think I will switch to an operating system that yields control of my property over to some organisation, they are in for a surprise.