cjdelphi:
Thinking to myself as i typed it, but the ones with an interest would know what i meant...
I'm pretty sure that you don't know what you mean, so I don't see how anyone else is supposed to. 
If you want to encrypt traffic within your network then there are various ways you can do this but the most obvious would be to set up an encrypted tunnel. If you want to invent a new type of network interface that takes network traffic via some other medium (you don't explain how the two end points would be connected if not via the existing network) then you would need to write a network driver for your proposed interface. This is non-trivial. If you are intending to terminate this 'encrypted connection' at a PC or similar then the PC would be the logical place to do whatever encryption you have in mind, and you could implement your own packet-munging layer quite easily without resorting to external hardware. (How do you think that packet shapers and firewalls work?)
The only time I would see any need for an Arduino is if your solution has to interact with some external hardware that your host can't access directly.