From the enter-passphrase screen in sync setup, canceling should only disable...

chrome/browser/sync/profile_sync_service.cc

Index: chrome/browser/sync/profile_sync_service.cc
===================================================================
--- chrome/browser/sync/profile_sync_service.cc	(revision 72509)
+++ chrome/browser/sync/profile_sync_service.cc	(working copy)
@@ -431,6 +431,14 @@
   backend_.reset(new SyncBackendHost(profile_));
 }
 
+bool ProfileSyncService::IsEncryptedDatatypeEnabled() const {
+  // Currently on passwords are an encrypted datatype, so
+  // we check to see if it is enabled.
+  syncable::ModelTypeSet types;
+  GetPreferredDataTypes(&types);
+  return types.count(syncable::PASSWORDS) != 0;
+}
+
 void ProfileSyncService::StartUp() {
   // Don't start up multiple times.
   if (backend_.get()) {
@@ -703,6 +711,15 @@
     return;
   }
 
+  // We will skip the passphrase prompt and suppress the warning
+  // if the passphrase is needed for decryption but the user is
+  // not syncing an encrypted data type on this machine.
+  // Otherwise we prompt.
+  if (!IsEncryptedDatatypeEnabled() && for_decryption) {
+    OnPassphraseAccepted();
+    return;
+  }
+
   if (WizardIsVisible()) {
     wizard_.Step(SyncSetupWizard::ENTER_PASSPHRASE);
   }