JR, no I didn't 'encapsulate' the electrical, if you're meaning pour JB Weld around the element wiring? I wanted a unit that I could easily take apart and/or change elements if I wanted/needed. I have had no issues with leaks with this system. NOT that it couldn't happen, but always use a CFI receptical and check the tube for moisture regularly.
On the rust... Just from reading the forums, you will see this talked about with elements. However, I haven't had an issue as bad as yours. However, I always remove it HOT (not ON) and after a little cooling, I dry what is left on the unit & element. Lastly, I soak the unit in cleaner at the end of the brew day, rinse and dry before putting away. Maybe this helps mine. Could your area water make it more likely to occur?
Hope this helps,
Robert