What happens if you Time-Machine backup an encrypted file-vault HD?

This is related to my previous post - but deserves special mention for those people who are using time-vault AND Time-Machine.
My question is this: If the backup of my Hard-drive is encrypted, and I then reinstall from backup, what will this situation likely produce?
This is what I have done. I also Archived and installed my Mac prior to installing from my Time-Machine backup.
I now have an error message that displays the following message at the login screen:
"Unable to log into the file-vault account "......." at this time. An error has occurred."
My password IS CORRECT. I have not changed it, and the log in window does accept my password, but it doesn't progress any further than the error message I gave above.
I'm wondering if the encryption process of file-vault is linked directly with the original installation I had of Mac OS-X before I Archived and installed.
Any thoughts/knowledge/Insight?? I want my old Mac back! (I don't recommend using file-vault). Any body else had this problem or can see what is happening to me here?
Thank you
Greg

I just did a backup, moved a folder with 600mb of images into a different folder, and did another backup. The free space on the backup drive dropped by the size of the folder's contents. The backup copied the files as I watched in System Preferences, and it looked like it was really copying the files to the external drive again. It looks like Time Machine isn't as smart as I hoped in this regard.
Still - I'd think the wasted space is only in the every-hour-for-the-last-24-hours bucket of Time Machine. I'm guessing the every hour backups are like a sliding window, where a backup that's 24 hours old drops out every hour rather than all the hourly backups getting wiped at midnight and starting over.
Regardless, only one version of the moved folder will eventually be stored as the daily backup for that day. I don't have proof, but that's what I think.
So, if you've moved a bunch of folders around or renamed them, the extra copies of the same exact files should drop off within 24 hours.
That's my interpretation, but I'm in no way positive!! The lengthy Ars review didn't offer an answer to this question.

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