Does encrypting the Xoom tablet use battery faster?
Encryption is a fairly CPU intensive process, so using more battery is not unexpected.  Though it depends a lot upon the apps you use and how much they read/write to the storage.  I would expect that an 'idle' Xoom with encryption would last just as long as one without, but if you use an app that does lots of little writes to disk, it will end up using more CPU.

The encryption happens at the block layer.  This means that small writes to the disk require a read, a decrypt, an update, and then writing the block back.

I don't see any useful stats about the actual CPU overhead.  (Android is using the 'dm-crypt' module of the Linux kernel to do the disk encryption.)