I was just about to post the same problem. I have a PDF book that has a permissions password (so you can't copy/paste/edit), but not a document open password. Mobipocket Creator converts it fine, although I was hoping Calbre would do a better job with the TOC and the paragraph formatting. Perhaps Mobipocket Creator *shouldn't* be converting this file, but... it would be great if Calibre did.
Ticket filed:
http://calibre.kovidgoyal.net/ticket/1821