Hi all.
I've been thinking about this story, and I have a few notions which I'd like to share.
First, my idea that a virtual machine observing memory access might be able to decompile the encrypted code wouldn't work. While such a virtual machine may well be able to reconstruct simple machine language commands, it would not be able to capture the logic behind those commands; and it is the logic more than the code which IS a program.
Second: I also wonder if unbreakable software technology will even be allowed in the market by the American Government. As a security threat, and as a weapon, it may just be too powerful. The Government may militarize this technology. The next Stuxnet worm is almost certainly going to be encrypted before it is released. Such a worm could do its job with absolutely no possibility of it being turned back against its maker. Suspicions as to who the maker is would run high towards the US in the short term, for the technology was developed first here; but by its uncrackable nature, such a worm is all but untraceable and there will soon be other players in the game.
Third: It is the nature of technology that once a high-level player makes a major breakthrough and that a thing is discovered to be possible, it is only a matter of time before other players replicate the achievement. China in particular is certain to train its massive intellectual savvy on the challenge and will, within a few years, have the ability to create uncrackable worms of their own. This may happen sooner if they can successfully employ espionage. That should give anyone pause. Russia too is a major contender to develop this technology, as is any country with serious mathematical chops and a military bent. (India, Israel, Japan perhaps.)
Fourth: Even if encrypted programs are currently slow to run, it is only a matter of time before the technology becomes viable. It may take a computer generation or three before computer speed eliminates any slowing issue, and any slowness may be dealt with much sooner if the technology becomes commercialized. Computers may ship with a dedicated processing chip specifically to support on-the-fly encryption math. Microsoft is sick and tired of its operating systems being cracked and on the streets before they are even released. The appeal of unbreakable software to the industry is obvious.
We may also see other forms intellectual property become unbreakabily encrypted. Want to watch the new 'Pandora Part III'? Sure! Simply pop the DVD into your machine, load up the included special encryption player program, and enjoy! Perhaps this form of encryption could extend even to Satellite or Cable. Music, literature, video.. who knows how far a commercialized form of this technology could extend? Maybe even to the newest version of GLbasic?

Finally, one benefit of commercializing this technology is that it could make hacking much more difficult and thereby make critical infrastructure systems more secure. Imagine the source code for every sort of system going black. It could make hacking things so much more difficult it it becomes impossible for a hacking team to dump code that is burned onto hardware chips; the sorts of chips found in cars, pacemakers, cellphones, utilities, you name it.
Just some speculations. You heard about them here, first.
-CW