Recovery of possibly corrupted Bitcoin Wallet
Note there are two kinds of encryption for wallets:
Encryption of the wallet itself, and of just the private keys.
If your wallet is very old, it did not support wallet encryption at the time.  Only your private keys are encrypted.
Decrypting your private keys has failed because your passphrase is wrong.  pywallet is just not giving you a good error message.
I wrote a guide to corrupt Bitcoin Wallet recovery which has some other tools you can try.