After trying every password and PIN I have ever used on my iPad as well as the PC I sync it to, letting elcomsoft brute force run for 12 hours on my 12proc machine, and reading the forums, I'm now thinking that the encrypted backup was enabled when I first sync'd my iPad to my company's exchange server for eMail. The exchange server does push the policy that a PIN must be set before sync will work so I can see where Apple's logic is that if the iPad is supposed to be secure then the backups must also be encrypted. Since elcomsoft tried every four number PIN combination and I know I only used four number PINs, I'm betting that like another poster above, iTunes used my original exchange password for the backup file.
Two problems with this: neither my iPad or iTunes let me know this was happening so I didn't have the opportunity to record the password I was using at the time and the iOS upgrade process should be smart enough to notice that encrypted backup is enabled and ask you for the password BEFORE the upgrade process starts and your device gets wiped.
Since my company requires a very strong password and since the password change policy is set to force me to change my password frequently and since I have had my iPad since April, there is practically no chance that I'll remember the strong password I had that far back. So, I am SOL and I give up. I'll just have to live with losing all my data.
Now I am focused on fixing this moving forward. Right now iTunes is still encrypting my backups and I cannot disable or reset the password since the old password is required for a reset.
Any ideas on how to reset the encrypted password? At this point totally wiping the device is fine with me :-(.