I have exactly the same problem on a newly installed Debian Etch system
that was fully encrypted (except /boot) using the guided partitioner.  I
have an external WD MyBook 320GB 1394a disk that was unencrypted.
Performance was fine to the 1394a disk (both read/write speeds as well
as LAN transfer rates) until I encrypted it then I get exactly the same
issues:

LAN performance both read and write is almost exactly halved.  11MB to 6MB 
ethernet and 2.5MB to 1.5MB read wireless.
Writes to 1394a the disk overload the CPU so that mouse pointer hangs every few 
seconds.
Writes to 1394a disk don't write at a steady rate, but suspend (no CPU) then 
after a while continue.  kjournal and kcryptd/0 are the 2 processes taking all 
the CPU, but when the write suspends, they drop to zero.
Read rate is constant but rate is halved.

Does not seem Ubuntu related or related to that particular kernel as
Etch does not use same kernel as Feisty or Gutsy.

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Write load on DM-Crypt LUKS partition with reiserfs jams system
https://bugs.launchpad.net/bugs/82528
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