700,000 BTC were stolen from MTGox. So are they actually spendable by the hacker or are they now just lost to the world? I can understand wallets being encrypted, but why aren't individual BTC encrypted with the owners private key so that a stolen BTC is worthless unless the owner unencrypts it first?
Your question indicates certain misconceptions about what Bitcoin is. I would advice you to take an afternoon to read the Bitcoin whitepaper, learn from other sources and understand as much as possible. It is possible to know what Bitcoins truly are without great technical knowledge. (Bitcoin transactions can only be made with the owner's private key. A "theft" usually means performing a transaction towards a thief's address, by manipulation of software or persons or obtaining other people's private keys.)
They can be spent just like any other Bitcoin. The only thing is that you can trace every Bitcoin, and therefore know it has been partially stolen Bitcoin. This is called "Taint".
A tainted Bitcoin could be considered less valuable as it would not be accepted everywhere and spending them at "legal" institutions would give a lead towards the thief. Buying stolen goods is illegal in most countries, stolen Bitcoin would count too.
If the Bitcoin community agrees on no longer accepting stolen coins they could even become practically worthless, the risk of arrest for theft and the low value or spendability of coins would be complicating.
The problem is that "theft" is a political issue, just like ownership. Some nations might not consider a hack a theft, and certain Bitcoiners definitely think so too ;). Who would be the judge in discriminating a stolen from an unstolen Bitcoin?
Then there's the fact that someone might have accepted Bitcoins not knowing they were stolen, or even whom they're really from. Or accepting them before it was decided they were stolen. Similarly to counterfeit money. This means that Bitcoins once stolen, are not per definition "stolen" or "illegally accepted" now. Certain Bitcoin laundry services are available to attempt to disturb the usual tracebility.
Overall I would say that a thief would have to be very careful not to expose him/her self. An effective laundry service could help him/her with that. But the coin is still the coin, and can still be spent.
Please let me know if this answered your question. Comment if you are unsure of something.
You can't encrypt individual BTC. Only the wallet containing BTC (to say it in a popular way, the real technology behind it is different) can be encrypted.
The stealing of the coins means they got sent to another address and are therefor spendable. Individual bitcoins can't be encrypted since they only exist as numbers in the public ledger of transactions called the blockchain. What you encrypt is the private key that 'gives you the right' to spend output from a previous transaction.