Open an encrypted .zip

Finder does it automatically.

tell application "Finder"
open (choose file)
end tell

or

tell application "Finder"
open Macintosh HD:Path:To:Your:File.extension.zip
end tell

or

tell application "Finder"
open variable1
end tell

Or do you mean a zip that's encrypted?

How would you enter the password for an encrypted .zip ?

The best you can get is to prompt the user for the password within your script, then pass that to the command line unzip, e.g.:

set theZipFile to (choose file with prompt "Please select the zip file:")
set thePW to text returned of display dialog "Please enter the zip file's password:" default answer "" with hidden answer

do shell script "/usr/bin/unzip -P " & quoted form of thePW & space & quoted form of POSIX path of theZipFile