Q. Does Data Protection Manager perform encryption/compression on the data it stores?
A. No. Data Protection Manager (DPM) does not perform compression or encryption on disk of the data it protects. DPM stores data very efficiently by only storing the changed blocks between recovery points.
If you want encryption, then leverage a SAN that supports hardware encryption, a 3rd party hardware encryption product or if data is encrypted at the source, i.e. NTFS encryption, then the data would stay encrypted in the DPM replica.
Another option for compression and encryption is http://www.exar.com/data-compression/ which works with DPM replica volumes. You cannot use BitLocker with DPM volumes.
(Editor's note: You can read much, much more about Data Protection Manager here.)