Encrypting internal data is important when there are multiple trust zones in the data centre.
The most common trust zones can come about from having multiple companies sharing a data centre. Having a network encryption ensures that in the event that packets going to one machine ends up arriving at the wrong one, they'll be in a form that's unreadable to tenants from different trust zones.
However even if a single company owns the entire data centre, usually a large companies are composed of multiple departments and it's often necessary for a security conscious company to enforce internal boundaries. For example, Accounting systems may be segregated from HR systems except through a number of predefined exchange points that can be monitored.
Another common reason why you want internal encryption is to protect from physical attacks, from interception of cables between machines. In a large data centre, you will have cables going from many different directions. You may not want the cleaning service staffs to have access to the locked server racks, but you may have cables that need to cross racks. When a data centre gets sufficiently complicated, it can be difficult to keep track of which cable needs to go where and which needs to be encrypted, so having a global must-encrypt policy can actually reduce the load on decision making process. In another scenario, you may want to enforce a two man rule where nobody can have physical access to a machine alone. Encrypting the local traffic can reduce the amount of zones that would be considered a two-man zones.