I don't quite understand what you mean by "default text format". Are you maybe referring to character encoding? In that case UTF-8 is pretty widely used (allows using characters not belonging to the ASCII set); Windows uses (typically) the Windows-1252 encoding, if you don't ask for anything else. If you need to convert between these, there are utilies for that.
You should post only one question per thread, at least if the questions are about different subjects. But here goes..I take it "encrypt system" option in the installer means that (by selecting it) the harddisk partitions are encrypted (except for boot partition, usually) in order to prevent reading them without the proper keys (e.g. by booting off a live-cd one couldn't simply mount the partitions and read the data). In a typical installation the partitions are not encrypted and can thus be read by anyone who can mount them, which means practically anyone who has physical access to the computer.