Thanks for taking the time to write all of that up! You raise some good points.

The desire for encryption at rest comes from a desire to protect any company-sensitive or user data that we store. Our policy for such information is always "better safe than sorry". Since the S3 storage engine already supports setting the encryption header when putting an object, the simplicity of adding that functionality into the StorageEngine seemed like a no-brainer to allow us to switch to using S3 storage for Phabricator.