Is full device encryption possible on LG Optimus L5 II (LG-E460)? After starting the encryption process from within the Device Policy Manager for Google Apps the device will reboot, and immediately get stuck on the boot loader while happily displaying the LG logo until it runs out of power.

Reinstalling the software image using the LG Mobile Support Tool makes no difference. It successfully installs the software, reboots the phone  - and we're back to the permanent LG logo again.

Naturally I assumed I had a problem with the specific device, so I then went ahead and bricked a second LG-E460 in the exact same way.

Any way to fix the boot problem?

While reinstalling the software made no difference, a hard factory reset (triggered by holding down power, volume down and quickset) let the device return to a bootable state.

Can the LG-E460 be set up with encryption at all? Any reason as to why it might not work? I kinda thought of storage encryption as more of a universal Android thing and never considered that a mid range phone might not have such features.

Lack of such essential security features would reduce these phones to children's toys in my eyes. Even if I could work around my personal security concerns, in these parts, full device encryption is very much a requirement to access just about any business related system or network, or even to sync contacts, schedule and mail with company services.
You probably can encrypt your device by installing CyanogenMod, and entering the following command in the Terminal Emulator app:

vdc enablecrypto inplace PASSWORD


where PASSWORD is replaced by your password. If that command won't work, try replacing inplace with wipe although be careful, since that will wipe all of your data.