I had the same issue. I also wanted to replicate encrypted VMs between sites. When using the replication wizard, I got the error "VMCrypt capability is enabled for the source VM, but LWDS capability is not. The VM cannot be replicated. The hbr-agent might be missing or is not running on the source ESXi." on step 4 Replication Settings.

I opened a support ticket and the short version is they often see VR not pushing the VIB down to the ESXi hosts and don't know why but plan to fix it in the future.

For now, you can use these steps to manually deploy to your ESXi hosts.

1. Enable SSH on all the ESXi hosts in your cluster where VR is being used.
2. Log onto your VR appliance as root at the console. You can try running /usr/bin/enable-sshd.sh, but even after that I still couldn't ssh into it. Kept getting bad user/pass, even though I was very sure I put in the credentials correctly. SSH into VR isn't necessary for these steps.
3. On your VR console, CD to /opt/vmware/hbr/vib. Inside you should find vmware-hbr-agent-<version>.vib
4. Use SCP to copy the vib from the VR appliance directly to you ESXi hosts that have SSH enabled. In this example we'll copy it to /tmp. The syntax is:
   scp vmware-hbr-agent-<version>.vib root@<esxihost>:/tmp
5. Type yes when prompted and enter your ESXi host's root password when prompted.
6. Repeat the scp step for each ESXi host.
7. Log on to each ESXi host and run the command to install the vib. I didn't need to put my hosts into maintenance mode to do it and wasn't prompted to reboot.
   esxcli software vib install -v /tmp/vmware-hbr-agent-<version>.vib
8. When running the command above, enter the full path to the .vib or you'll get an error even if you're running the command in the same directory as the .vib.
9. Disable SSH on your ESXi hosts and try the replication wizard again.