Is it safe to encrypt
bitcoind wallet if it holds funded addresses?
Not only is it safe to encrypt wallets with money in them, it is unsafe not to do so. Think of your wallet as a computer file serving as your safe, in which you put your savings. Would you leave your safe open? Probably not. You'd set a complex combination.
This is even more important in Bitcoin. Since your wallet is just a file on your hard disk, it can not only get physically stolen, but also digitally stolen over the Internet by viruses and other malware. Having your wallet setup to not require a password is asking for trouble. You could lose everything in an instant.
The only real risk of encryption is forgetting the password. Unlike a safe, encryption can't be bypassed by a locksmith. Lose the password, lose the money. If physical theft is not a problem for you, you may want to write down the password and put it in a safe deposit box. Viruses don't read paper. Regardless of encryption, you also want to make a backup of your wallet file onto external storage, in case your hard drive goes kaput. This should also be in a safe place.