Here's what I see in your snap of DU:
Frankly, I'm not sure what you have setup on the storage. Initially, I would expect that there is an encrypted drive set up via FileVault. To see if that's correct please open Security & Privacy preference panel. Click on the FileVault tab. Does it show FileVault as ON or OFF? Or when you formatted your drive did you choose the option for Mac OS Extended (Journaled, Encrypted?) Select your Macintosh HD and look at the status area to see how the drive is configured.
I think all you have to do is turn off FileVault. You cannot actually decrypt the drive if you have set up the encrypted filesystem. But I don't think that is necessary. Besides you must repartition the drive which means you will lose everything on the drive, so you would need a current and reliable backup before doing that.
Just turn off FileVault for now and see if that solves your problem.
I'm stumped. I don't know what you may have done with your computer that put you in this state. I can suggest the extreme solution: backup your entire Home folder onto an external drive. Boot from your Recovery HD and reinstall OS X from scratch:
Install or Reinstall Lion/Mountain Lion from Scratch
Be sure you backup your files to an external drive or second internal drive because the following procedure will remove everything from the hard drive.
Boot to the Recovery HD:
Restart the computer and after the chime press and hold down the COMMAND and R keys until the menu screen appears. Alternatively, restart the computer and after the chime press and hold down the OPTION key until the boot manager screen appears. Select the Recovery HD and click on the downward pointing arrow button.
Erase the hard drive:
1. Select Disk Utility from the main menu and click on the Continue button.
2. After DU loads select your startup volume (usually Macintosh HD) from the
left side list. Click on the Erase tab in the DU main window.
3. Set the format type to Mac OS Extended (Journaled.) Optionally, click on
the Security button and set the Zero Data option to one-pass. Click on
the Erase button and wait until the process has completed.
4. Quit DU and return to the main menu.
Reinstall Lion/Mountain Lion: Select Reinstall Lion/Mountain Lion and click on the Install button.
Note: You will need an active Internet connection. I suggest using Ethernet if possible
because it is three times faster than wireless.