hythlodayr is correct - the ODBC administrator creates the ENP parameter instead of the PWD parameter when you check the "encrypt password" checkbox. The iqdsn utility's -pe switch does the same thing if you create your DSNs that way.
The ENP parameter is encrypted using a proprietary encryption algorithm, but it is not a substitute for strong encryption. A determined hacker could probably break it. Any DSN that contains a password, encrypted or not, is a security risk.
Full disclosure: I work for Sybase in SQL Anywhere engineering. SQL Anywhere is the database server used by Sybase IQ.