I've had a look at the login packets specifically the login packets sent by the launcher. The packets are not encrypted as such, the username and password seem to be xor'd with some scheme.
If you look in a login packet that i tried, in which i used the username testuser, and password testpass
1F 00 15 03 11 00 12 11 10 12 00 13 65 65 65 65 65 11 00 12 11 15 04 12 12 65 65 65 65 65 00
The red bytes are the username and the blue bytes are the password (both upto 13 chars)
The username i entered was only 8 bytes, so the other bytes that are all 65 in this case are null bytes (00) that have been xor'd, obviously if you xor 00 with 65, you get 65, therfore the xor key mostly likely used with the other bytes is also 65.
Using the above example lets xor each value in the username with 65
11 00 12 11 15 04 12 12 65 65 65 65 65
74 65 77 74 70 61 77 77 00 00 00 00 00
Above, the blue bytes are the origional bytes in the username, in red are the same bytes xor'd with 65.
If you convert the red bytes to there ascii value, you get a username of 'tewtpaww', some characters are converted ok, however some are not, so there is another step that needs finding, i belive the key is in the packet recv'd before the username/password is sent.