You’re welcome.
This seems to be similar to the .mkv header compression issue.
The WDTV thought it should be able to play it, and then when it started reading the stream, it got all confused and then refused to play anything – just like with the compressed headers in .mkv.
I suppose WD could change the firmware… not to get it to play something it can’t, but so that if it encounters an encrypted .ts stream, it gives you a message that the file is not playable, and the player remains usable for other media files without needing to be reset. I wouldn’t count on this being a high-priority bugfix, tho.