If you encrypted messages with 1.0, uninstalled, then installed 1.1 -- that would happen. By uninstalling you remove the added 'encrypt' row to the 'pmtext' table. When you re-install, the 'encrypt' row is added but without the correct integer for the previously encrypted messages. So when viewing those earlier encrypted messages, the decryption engine doesn't know to decrypt them.
I've installed, upgraded, uninstalled, reinstalled, reupgraded, etc.. about a dozen times, and each time the encryption/decryption works fine. The only problem, that I'm aware of currently, is occasionally the encryption text will contain a smiley bbcode (ie.

), thus preventing the message from being DEcrypted.
So, until that bug is fixed I would recommend checking "Disable smilies" when sending PM's. Also, keep in mind that this is still Beta, as noted in the original post.
Once I get into my office this morning, I'll go through the code. It was late last night, so God knows.