You're right -- we have an advanced way to actually inspect the file to ensure that it's a valid file. The encryption happens post-check.
Unfortunately, we don't have a way to let you encrypt your data and then upload it up yet (but have a few ideas on how to make this work for the future). Besides, if you did encrypt all your stuff, you wouldn't be able to take advantage of all our media features like video/audio streaming, photo/doc viewer, etc. :).