I haven't encrypted my N7, but I tried out encryption on my Galaxy Nexus... which should, for all intensive purposes, be exactly the same.
Pros:
-Even if you don't have anything to hide, it's always nice to have that security. If, for any reason, the police or government want to search your devices, they will work on ALL of your devices. And, the way I see it, if they're going to get into my data, they need to
WORK at it and
EARN it.
[*Quick story here: A friend of mine explained that he has ALL of his electronics encrypted with 256AES encryption, but only one device has anything worth cracking the encryption for... the rest are filled to the BRIM with HARDCORE GAY PRON. His words were, "If they're going to steal my electronics, devote countless man-hours and resources to decrypt all of my information, and try to prosecute me, I'm going to at least have some fun with them in the process." I just want to see the faces of the agents that had just spent weeks unencrypting all of that data just to find out what's REALLY on there... LOL]
-Because of the 5th Amendment, and a recent Supreme Court ruling, if your phone has encryption and the police want to get into it, they either have to crack the code themselves or give you the phone back. You are in no way legally obligated to give them the passcode to your device.
-Full device encryption is
MUCH more secure than your standard screen lock since it encrypts all of the data on a device (including the "SD card") and doesn't just lock out the screen.
-You can still have a rooted/unlocked device, even if it's encrypted.
-Encrypting the device is
very painless.
Cons:
-As said before, your encryption passcode is
always the same as your screen lock passcode. So, you're faced with the decision of having a good encryption and putting in a detailed passcode every time you want to unlock your device, or you have a weak encryption and can comfortably unlock your device any time you need it.
-You can no us any other screen lock than the passcode/PIN unlock. Everything else becomes deactivated and unusable.
-Since the entire device is encrypted (including the "SD card"), and
most bootloaders don't give you the option to decrypt the SD card contents before it starts up, you can not flash ROMs that are stored on the SD card... since there isn't really an SD card on the N7. This means that
most bootloaders can not read the "SD card," since it's not decrypted, and load any of the ROMs that are on it.
-In order to remove the encryption on your device you have to do a
FULL reset, which wipes
ALL of your data. It's painless to encrypt, but a lot of work to take that encryption away.
So, just take these into account when you encrypt your device. I did it to my GNex, and will probably do it to my N7. I know this isn't a comprehensive list, but it's what I have noticed in my endeavors...