I'd say that all of those usability problems are made worse by bolting on encryption after the fact. It makes it so there are now two layers of authentication/identity, rather than a single one. Whereas with built in encryption, you can always punt on solving the problems you list and make implementations that are less secure. For example, just store the keys on the server, accessed by the password. That's obviously less secure, but not less secure than no encryption.
Yeah, I don't disagree. Just saying that even if they had put encryption in at the outset, there are still tough issues to solve in terms of integrating that with user expectations.
