Quote - A program could store an encrypted function as data, and decrypt it and call the location of the decrypted code as a function pointer.

Only if the code has no reference to any data (only works with registers).

Quote - It would certainly be possible to design an operating system that could handle code that was stored in encrypted form on disk, and to be able to decrypt it as it loads it into memory (upon being passed the decryption key).

Yes it is possible, the operational system must decrypt first before relocating the data, but this is not the way as Windows works.

Anyway encrypting the code will help nothing, you can always dump the memory after the code was decrypted and so you will have the executable without any protection.

Stupidity also evolves!