If it's a general file encryption and not MP4-specific, then it would only work if the data sizes do not change or you have a method of keeping track of any data offsets. The MediaReader reads the packet offsets from the moov atom and then calls the read method with these offsets each time it requires a piece of data. If the information in the moov atom doesn’t match the actual data positions on disk then it would fail.
If it is some form of MP4-specific encryption, then the data in the moov atom may already adjust for this. However, the MediaReader is going to expect back the same number of bytes it requests each time, so if the decryption changes the size of the data then it could cause problems.