I don't think the data on a Tivo is encrypted, since I know there is a way to pull shows off the HD onto a PC, so maybe Dish's DVR is the same.
I don't think DRM is going to make 3rd party DVRs illegal, look at Tivo's Series 3 DVR, which will have HD recording when they finally release it. Tivo got a license for CableCard slots and Cable Labs recently approved their DVR.
What DRM is going to kill is DIY PC-based HD DVRs. PC companies are not to going to be able sell PCs with CableCard slots without approval from Cable Labs. And the Newegg's of the world will not be allowed to sell CableCard slots on PCI cards. I'm also guessing reverse engineering a CableCard system to work with Linux is going to be a non-trivial project.