Re: 2: If you adhere to the Microsoft requirements, Windows 11 requires a Trusted Platform Module device. Workstation 17 recognizes Windows 11 as a supported guest type,. Because of the Microsoft requirements, it automatically adds a TPM device for you when you create a Windows 11 VM. The virtualized TPM device requires the VM to be encrypted, so that's why the dialog appears that you attached to your post.

It's recommended that in almost all cases, you choose the encryption option to encrypt only the files necessary to support a TPM device. This option has minimal performance impact to the VM because it does not encrypt the contents of the virtual disks (unlike the encryption option you're used to in Workstation 15, which encrypted the entire VM including the virtual disks).

When you encrypt the Windows 11 VM in Workstation 17, you should choose to create your own password and remember it. If you check the "Remember password" checkbox, the password will also be remembered in (the Windows) Credential Manager, and Workstation 17 will use it to automatically unlock the VM in the GUI. You should also be able to find the password  for the VM in the Credential Manager should you forget it.

Personally I would not attempt to disable the automatic addition of the TPM device and the associated encryption for Windows 11. Without the TPM, you will need to hack registry entries during Windows 11 installation to disable the TPM check. The recommended encryption option and the TPM adds almost no overhead to a running Windows 11 VM. Why make it harder on yourself?

You would not see this under Workstation 15 because it did not directly support a Windows 11 guest operating system type. You had to call it a Windows 10 and then either configure full encryption and a TPM device, or hack Windows during install to disable the TPM check. Workstation 15 did not have a partial encryption option.

Re: 1:  If you don't know the password for a encrypted VM, you might want to check the Windows Credential Manager and see if it's in there.