I discovered that the problem is not with file roller, but with Zip. It is my Zip package that doesn't include encryption.
I spent one day looking for a patch to download that will enable the options -e and -P for the zip command, but I cannot find it. I just found a reference to a patch "zcrypt28.zip", but I can't find it anywhere. I actually found a site with a download link to it, but I got a message that it had been removed. Can anubody help?