Actually, you're right, the blu-ray in encrypted, so if you didn't have the DRM decoder installed, then you would be having problems. The DRM code lets you play your copy-protected discs, and doesn't care about regular video files. The only problem you would ever experience is when you try to be the original pirate for the video, which every consumer doesn't need to do.
Someone somewhere will be able to circumvent the copy-protection, and then someone will upload the video, so really there's no problem for anyone except the media companyies. (They do get 3 or 4 years of actual copy-protection before it breaks sometimes, which is pretty good because I don't like to wait that long before watching my movies)