Well from some more playing around the packets are kinda weird and from what i've noticed you can have the following.
You have some packets that are encrypted and some that are not it depends on what is in the packet. Packets can also contain plain text and encrypted data. I have also noticed in a packet you can have the acknowledgment at the start of a packet and at the end of a packet.
Regardless been trying to figure out how they are handling the encryption but been unsuccessful since encryption is not my strong suit. So if anyone wants to take a crack at it be my guest.
Going to be posting up all my finding/playing here and how to bypass the launcher and just use vgclient.exe to run the game later on. I also have the breakdown of the Hex -> Ascii map they use for chat packets posted up.
http://mmoemulators.com/forum/viewforum.php?f=83