Sounded pretty interesting, so I tried this out on a 3550. Turned off service password-encryption and checked cpu util (this switch is not in service, just sitting on my desk, so there would be no variation in traffic or anything), turned service password-encryption back on and there was no difference in the cpu utilization.
What Burt said seems logical, after all, it is a "service" that is running, but it doesn't appear to have an effect on a 3550 running a very basic config.
Then again, the CCSP is focused highly on security, so maybe used in conjunction with other configurations/commands, service password-encryption would put a higher load on the processor.