I'm working on a new Z-Wave DCE device together with Sambuca that uses the OpenZWave library. OZW was inspired by our work and got in a pretty decent shape already. The current code in LMCE is not well structured and would need a massive overhaul. It lacks too many things to support encryption. Initially it was just a proof of concept. It just worked quite well so it went into production :-)
While OZW does not yet support encryption in the main branch, there is some work done already. When the new DCE device works well with OZW, we're looking at the encryption bits.