In this case, I agree they are justified. Though if it really was a serious terrorist investigation, and they suspected plans for other attacks, I would hope that they could crack the password if they wanted to. My concern is the underlying precedent. What does it mean for me and you?

And it seems to mean that any password can now be presumed to be incriminating evidence. What happens if my company gets investigated for some financial fraud and they find a forgotten password protected usb stick in the back of a drawer. Now the prosecutors can threaten me with jail time unless I prove that I do not know the password to that usb stick. How can I begin to mount a defence to that? That presumption of guilty until proven innocent is whats wrong here.