I don't know if I was unclear but I do have the password, of course. And it is correct, otherwise I wouldn't be able to even enter the settings for the VM.
Also, the error message for trying to unencrypt when I try another password is different, so the password seem to be very correct indeed.
To be extremely clear - I can use and run and manage my Ubuntu bubble without any problems at all, it's just when I try to turn encryption off that I get this message.
The file level backup procedure is not fully clear to me but somehow copying the contents of the virtual machine to an unencrypted bubble has crossed my mind.
I can't find any bug reporting facility (this is an evaluation license) so I might just ditch VMWare altogether and use something else instead, it doesn't feel very comfortable when things like this fail.