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I confess to confusion. "Format does not exist" comes from calibre. Why would a format come and go?
The encryption message is about the credentials used to connect to the content server. CC stores the username and password in an encrypted database. When you connect CC looks up the IP address/port in the database and uses whatever you used before. If connection fails then after you see this message CC should ask you for the correct credentials. If it does not then we are faced with the (impossible situation of) credentials are being accepted when you first connect but not later when you try to download the book.
The fact that restarting the content server makes things work strongly implies that the content server is not keeping track of cached formats. This is the sort of problem that I *really don't like* because they are often traffic and operation sensitive. That said, I will try to reproduce it using the detailed steps you provided.
As for "Why is it looking there?": that is an internal CC program trace. It means nothing to people in the real world.
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