This is incorrect.
Device encryption on 3GS and later devices are only for
1) Apps that implement Apple's device encryption API (ie, stashPro now has this)
2) If you have a strong password set
and
3) Unless you have a device released with iOS4.x, you will need to wipe, then restore it with the flag turned on
http://www.tipb.com/2011/03/18/daily-tip-enable-data-protect...