Does my wallet need to be unlocked to mine? Currently I am mining at around 775Mh/s and have been for only 12 hours.  I want to make sure everything is setup properly.

I have encrypted my wallet and Bitcoin is reporting that the wallet is encrypted and locked.  Does the wallet need to be unlocked in order for the mining process to yield its results?

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No, it doesn't have to be. Mining doesn't require private keys, only (part of) the public one. Having only the address of the destination is enough, so the wallet can be locked.