Thanks to both poidude and b33 for the replies...but not seeing these options. OS is 4.0.4 (ICS) and the phone is a Droid Razr...System Version that crashed the phone on install is 6.16.211.XT912.Verizon.en.US.
When I Select "System Settings" from the Home screen (using the "hard button" on the lower left of the phone) I get a nice new ICS screen. The first category is "Wireless and Networks", the second category is "Device". Under "Device" is "Storage". Selecting "Storage" leads you to a screen with Major categories of "Total Phone Storage", "Application Storage", "Internal Storage/MNT/SDCARD".
Under this last category, there is (after a storage utilization bar chart) "Erase Internal Storage" , "Manage Internal Storage";
If I select "Erase Internal Storage", I get "This action will erase the internal storage on the phone.You will lose all the data on the internal storage"; There is a button "Format Internal Storage". There is no option to separately format the SD card.
What may be more relevant is that when the phone boots up, it tries to read the SD card and then displays the "SD Card Password Protection" messages in my original post. So the OS is trying to mount the SD, but because it was encrypted (and from what I have read, the encryption key was stored in internal memory, which got wiped when the Verizon rep had me do a factory reset! There is no way to ever recover this data. Have looked at Motorola and Droid forums on this...it is really bad. DO NOT USE ENCRYPTION. If your phone dies, your data is gone forever)
The thing is, I cannot use the next major category under system settings, which is "SD CARD/ MNT/ SDCARD-EXT" which has only one option, "Mount SD Card"...if I try to mount the card, I get the same "SD Card Password Protection" messages again!
Can anyone who has inserted an SD card into a Droid Razr running 4.0.4. tell me if a brand new SD card is auto formatted? Do you have to "mount" it first? The current Verzion "help" shots are not for 4.0.4....ugh