Hi Again (buZz),
I am aware of wallet encryption, even if encryptwallet was NOT there you could always copy wallet.dat and use a third party encryption /decryption tool. Also any encryption can be broken, although this may not be profitable. I know a few people who still have problems with intruders taking copper pipe out of buildings in Chicago, which is also unprofitable since commodity prices have crashed.
Your right that a big waving flag in the block chain may be a bad idea, I figured there would be a good way to obsfucate the information through some one way encryption. Then anyone could check if wallet '1ABC...' is locked by encrypting the wallet address and comparing it to a list of encrypted wallet addresses, but couldn't easily obtain a list of locked or unlocking wallets. I haven't done any detailed work on implementation though, as I mentioned.