I don't know why watch-only wallets need encryption, they must have added that feature based on requests.
the new way of encrypting wallet files (which i believe was introduced in version 2.0) has two ways of encryption: 1. encrypting only keys and seed. 2. encrypting the whole wallet file.
watch-only wallets will use the second type which means when you open that wallet it will ask you for a password before showing you the list of addresses. this is mostly for privacy reasons than security.
Me, I'm going to wait for news before upgrading.
The saying: Don't try to fix it if it's working sometimes applies to updates.
it is not a bad idea to wait a little bit but always remember to make backups nonetheless.
and it is "improving" not exactly fixing something that is working! that's different.