I know microsoft has crap security, but in this case they probably aren't lying about it being encrypted. Encryption for storage simply isn't a solution that most people need for security of data on their devices. It pretty much only protects against the threat of a device being stolen, and that simply isn't the way most people lose their data. Almost every virus runs as the main user of the PC, so almost every virus will be able to decrypt the recall storage.
Microsoft should know this so it is easy to say they were disingenuous even raising this as a point. If Windows is to be secure it needs to fundamentally change its security model and that means breaking compatibility with a huge number of applications. So that probably can't happen.
macOS and iOS have later rolled out methods of data containerization on top of existing file systems. Microsoft certainly has the talent to do this as well. They shouldn’t have shipped a product without the necessary requirements in place - it’s quite obvious the sensitivity of this data.
Microsoft should know this so it is easy to say they were disingenuous even raising this as a point. If Windows is to be secure it needs to fundamentally change its security model and that means breaking compatibility with a huge number of applications. So that probably can't happen.