Time Machine does not have any built-in mechanism to verify a set of backups as being valid. That's one issue with Time Machine, being consumer orientated instead of enterprise...
Performing a Disk Repair in Disk Utility doesn't validate the Time Machine backup data, but will verify the structure and integrity of the backup disk. (Of course, Disk Warrior verifies / repairs in a complementary manner).
The only way that I see that you could verify the data in the backup is to do a full restore.
Please note, you can open the Console logs, and filter against BACKUPD to see what happens during a backup, and see if any error conditions occurred.
Edit:
Time Machine does include an option, if you hold down the option key and click on the Time Machine menu bar add-on, to "Verify backups".
This does not verify the contents of the backup. In other words, that backed up file abcd.txt is the same as abcd.txt, instead this verifies that the Disk image the time machine data is not damaged.
Take a look at http://support.apple.com/kb/HT4076
No
There is zero encryption applied by default to a Time Machine backup.
Although you may not be able to just 'load' a Time Machine backup from another computer easily, I would imagine that it would be very trivial for someone to actually view the files as no special effort is made to protect them like this.
Edit: As Arjan said, "Loading it is as easy as holding down Option to change "Enter Time Machine" into "Browse Other Time Machine Disks"."
Best Answer
Yes, Time machine is incremental. OS X using an events driven agent, fsevents, to track which files change (no need for scanning every hour), and then, using modified hard-links, called multi-links for files which don't change, only those that do are incrementally changed. This is done hourly for the past 24 hours, daily backups for the past month, and weekly backups for everything older than a month.
The real magic of Time Machine however, is the simplicity of its UI to recover whatever incremental date you want, and to be able to use spotlight to search back in time for your files. This is really where the magic sauce that makes TM so useful to most users comes from.
In Snow Leopard, the time to do the initial backup to a time capsule (and I assume other network attached drives) has been substantially improved, but I think the underlying technology is unchanged.
The next technological innovation for time machine is to do within-file deltas, as currently it is a file, not block based technology (thus inefficient with large files like entourage databases). ZFS, when it finally comes to OS X client will be the best tool to improve Time Machine functionality...
Update:
John Siracusa's as-always fantastic Snow Leopard review has this golden nugget:
And as I suggested abot the ZFS magic to come: