a lot of work is done in game hacks to inject network packets, but they usually rely on packets not being sanitized and just injecting other values. Like for instance in some mmorpg you can edit packets that are sent, to add extra skill points on leveling up or other edits in the binary information. Encrypting would help against this.

I haven't seen them exploiting clients with malicious packets. This kind of thing is a little scary, for instance, what if you let their game install some known hack into itself? Then you would be able to get all playes VAC bans, which are permanent in any case i think as VAC cannot decern if the hack was inject by another player or the player who was victim of this install. if you would do that in matches, you could get adversaries banned from tournaments etc.