@popatim, thanks for the heads up. I wasn't aware of the Pro version.
According to the manual, "password protection is not available on non-WD drives and unencrypted WD drives".
WD SmartWare Software User Manual Version 2.4.x:
http://www.wdc.com/wdproducts/library/UM/ENG/4779-705057.pdf
AIUI the SmartWare password is not a standard ATA password. Instead the bridge firmware reserves a small area at the end of the drive for a "key sector" or "magic sector". This key is used for encryption and for storing the password (in a very secure way) and is backed up in the drive's own firmware. Non-WD drives would not have this key. SmartWare would know how to set this password and to set up a password challenge, but it would rely on WD's vendor specific bridge firmware to do it.
As for encryption, WD's drives are not themselves encrypted, at least not like FDE or SED drives. Instead the USB-SATA bridge firmware transparently handles the hardware based encryption, not the SmartWare software. In other words, the host sends unencrypted data to the drive via USB, and the bridge firmware then encrypts it and writes it to the drive.
In short, SmartWare does not implement encryption on any drive, not even on WD's encrypted models, and SmartWare passwords are only available on WD's encrypted drives.