Personally, I have never found need to encode/encrypt/obfuscate any PHP. I do however know that there is a large audience of developers and/or organizations out there that do rely on such obfuscation to protect their works. Not being sure if it has hit the news or not, as I have been too busy of late to even open up my RSS aggregator to skim the headlines, know that there is at least one service in the wild that can successfully decode Zend Encoder and IonCube encoded files. It’s not perfect by any means, as it is reconstructing the code based on the opcodes, but it does return it in a format that is true to the original as far as execution and reasonably easy for a human to parse.
I wrote this little number the other day after running across a script I was wanting to use, in which one component was obviously dependant upon register_globals. My gosh, if I only had the code I could fix that! Fortunately it was obfuscated with an application called SourceCop, which provides very little in the way of protection. Come on guys, you could at least obfuscate the code itself first, munging whitespace, variable and function names. As it was, it took a mere 20 minutes to write a script that would replace an encoded file with a pristine copy of the original. At any rate, here is the script, do note that it was a quick hack and as such it may or may not work for you. It will also simply overwrite any SourceCop encoded files fed to it, so you will want to create a backup first, you have been warned.
Update: 2/23/2006, revised script