Are you using one of JD's Roms?
Looks like this might have been an issue in some of JD's older ROMS. In this thread:
http://forum.ppcgeeks.com/showthread...=25070&page=97
post # 962 says "Nah, he's talking about encryption on the storage card. It often leads to corrupted storage cards which means you lose everything you had on there. JD has it removed in his roms, if I recall correctly."
I would get ahold of JD and see if he might be able to advise you. If not, see if you can find SOME setting to disable the encryption. From what I can tell, this happens when encryption is enabled on the SDCard, then is disabled. If you had put this card in another device that had encryptio enabled, that might have been the cause.