Sometimes HD vendors do strange things.
All of the newer WD external drives now have hardware drive encryption so the drive it's self can't be accessed from a different enclosure. Yet, you can move the drive between systems (within the enclosure)!
So what your getting is a half baked solution for protection of your data, as only if your drive dies and you pull it out and junk it are you safe (I use a drill to deal with that risk). My old Firewire 400 drive doesn't have this but it appears the newer FireWire 800 or USB only drives do as we had someone here banging their head trying to access the drive after breaking the USB port using another case.
As far as your drive I'm not sure if it has this, and yes, you still have your backup files encrypted as well with SmartWare so you'll need the password to gain access to those files.
Hope that helps