There is no way for me to either check that they didn't upload illegal content
Doesn't seem rational behavior to me. You make it sound as if you check for every file uploaded to the Bitcoin network, and take ethical responsibility for each. And this responsibility goes away if the file is encrypted... just because you can't see it? Someone else can, though. And it might be proved later on that it's illegal / unethical. What do you feel in that case? Why does encryption removes this concern? How do you know which person owns the decryption key? Maybe the key is publicly accessible as well, which would nullify the whole "encrypting data on-chain" concept.
The one person has access to the file, but they had access before, as well, otherwise how did they upload it?
Of course, I did not completely think it through regarding sharing the decryption key. A regular cloud storage provider could be notified about the presence of e.g. someone's private pictures having been uploaded in encrypted fashion and decryption key posted online. In that case, the provider could take the material down. On blockchain, it's not possible. So that's just one more reason
not to store files on the blockchain.