Just to clarify... there are THREE states for an Electrum wallet with regards to encryption and password:

1. Unencrypted - Wallet file is in Plain Text, private keys are in plain text. No password required for opening or doing "sensitive actions"
2. Password Protected - Wallet file is in Plaint Text, but private keys are encrypted with password. No password is required for opening, but you need the password when doing "sensitive actions"
3. Fully Encrypted - Wallet files is completed encrypted, private keys are also encrypted. Password is required when opening the wallet... and also when doing "sensitive actions".

These is on a WALLET level... so different wallets can have different levels of password protection/encryption.