I've noticed growing popularity in proxy services for torrent clients; such as BTGuard. Most torrent clients encrypt traffic so aren't these services pointless? I read that it's because the encryption is only for obfuscation, but how does this make sense? I mean encryption is encryption.
The growing popularity for Torrent proxies is for anonymity. You can encrypt traffic all you want, but it can always be traced back to the public facing node. The contents of your communication will remain private, however it can be identified that your IP address was in communication with a remote IP address. Without a proxy that will trace back to either your home or wherever you are physically connected to the internet.
With a torrent proxy (or any proxy for that matter) the traffic is negotiated by your proxy, and as such the proxy IP is the one exposed in transport and the traffic is sent back to you over an encrypted tunnel. Your computer acts as though it's on a LAN where your proxy server is, and as such the traffic is not traced back to you (assuming the proxy isn't keeping logs of connections)