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No, do not install it on the i700. It's for Pocket PC 2000, not 2002 or 2003. 2002/2003 already have 128bit encryption built in.
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OS 2003 already has this built in yes. I don't think PPC2002 does however, hence microsoft's instructions. I installed the encryption pack following the installation instructions on my e310 and it works as expected. I could not use 128 bit encryption before i installed this pack. The only reason I can think of to install this pack however is if you encrypt / decrypt your files (e.g. using resco file explorer) using these algorithims or access websites on your ppc that require it. However, a note on the latter point - some secure websites may not be compatible with pocketpc's inherent IE as they require the equivalent of IE6.
I haven't tried overwriting the file microsoft says NOT to overwrite... nor do i recommend you do so
