I programmed my encrypted bit file in following steps.
1. Get a encrypted bit file and nky file.
2. Select nky file and program nky file first on any Virtex-II/-IIP/-4 device.
3. Select bit file and program bit file.
iMPACT will report "Programming Succeeded", but the actual design does not start. The Done pin goes High though.
This issue will be fixed in the 8.2 release of the design tools.
To work around this issue, program the bit file first and then provide the nky file from the "program key" option. It works okay.