Private vs encrypted
"What expectation of privacy do people have, if they don't use encryption on their routers?"
The expectation of privacy is unrelated to the encryption level of the data concerned. The common sense application would be along your lines; however if someone was following you with a tape recorder while you were talking on a mobile phone, would you object to their taping of your broadcast, unencrypted traffic? By being audible, are you tacitly agreeing that people can use your emitted sounds for any purpose? By being visible, are you tacitly agreeing for people to use your image for any purpose they see fit? Existing privacy legislation says not, but common sense would say yes.
So, on the one hand, if by your statement you mean "unencrypted = public domain", taping people on the street would be perfectly allowable, meaning that if you choose to speak in a language I understand, the data is usable by me for any purpose I see fit. You would have to ensure it was unintelligible if you wished it to remain private, but, as I interpret your statement, I should be able to see the data since you were speaking openly in public, and therefore have no reasonable expectation of privacy.
On the other hand, you could claim that you have an expectation of your phone conversations to be private. Even if you choose to speak in a plain language (English, for instance) and have made no effort to obfuscate or encrypt the data, anyone who happens to be able to pick up the data stream (e.g. sitting next to you on the bus) should not make an effort to use that data.
As a further note, I would point out that in the UK (as in the US I believe), opening someone else's letter is an offense. The data contained therein is probably not encrypted, and has a trivial content protection mechanism (the envelope), yet legislation already exists to protect the privacy of that information. There has also been a recent ruling in the US effectively confirming the second interpretation regarding phones; police who have previously been able to tap anyone's mobile conversations whenever they felt like it, on the grounds that "mobile phone users have no reasonable expectation of privacy over their conversations" have recently been told that they need a warrant to tap any communications method regardless of expectation of privacy.
I understand you thinking your view is a common sense interpretation, but "common sense" is less sensible than most people think, and completely irrelevant from a legal perspective. If being conned is your own fault, then fraud should be legal. It is not. If private data is sent via unencrypted broadcast, it is still private data. If for some reason you have WEP enabled on a router, the encryption status would suggest it is private data, but the triviality of breaking WEP essentially means you may as well not have bothered. Where does your interpretation stand there? Is WEP encrypted traffic private, or public?
I would rather err on the side of privacy, myself. As far as I'm concerned all data should be considered private unless tagged as public via a disclaimer. It's the simplest method of resolving these questions :)