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It's just the media player. It would be up to the OS and filesystem drivers to handle the decryption.

http://kodi.wiki/view/Features_and_supported_formats#Format_...

It runs on top of your regular OS (usually Linux for dedicated players), so yes.

So if it is running linux then it should be able to mount ext4 drives ... so long as there is some sort of interface to accept keyboard input. And, of course, no ridiculous retransmission or caching of said keyboard inputs.

This comes up sometimes in my day job where on occasion I want to play something on a USB drive (to a projector/scree) but hesitate to save it unencrypted. ATM I often carry two laptops to accomplish this, but would much rather travel with one laptop and one tiny media player.

Yup. You can run it either standalone (perhaps with an automounting script in the background, that uses a hardcoded key?) or inside your regular desktop environment (in which case that probably has a solution for mounting the drive).

I'd recommend Plex instead. It's effectively a simpler, more polished version of KODI.

(IMO)