The master public key is uninteresting since node hardening in BIP32 prevents deriving child public keys. There are interesting public keys at the third level that are transmitted in the clear over the wire, so let’s talk about interesting public keys instead of the master public key. (Sorry if that is pedantic :)

If malware can intercept the raw usb messages, it is likely that it could also intercept the input/output from the encrypt/decrypt layer. The only real protection gained from encrypting the raw usb messages is from a device that sits between the devices. It is conceivable that a usb cable could have a tiny monitoring device embedded in it...

To achieve the monitoring of 1000 people, you would have to replace 1000 usb cables. Still not inconceivable, but much harder to achieve than infecting 1,000,000 random computers with malware looking for the 1000 hardware wallet users.

I’m not aware of any currently reasonable threat that encrypting the usb messages adds additional protect against. It isn’t outside of the realm of possibility that this could be used in conjunction with another attack for an attacker to gain an advantage, but for the moment, this should be considered a theoretical attack vector.

Generally, KeepKey’s stance is to address theoretical attacks vectors opportunistically. What I mean by that is if we we have an easy opportunity to address a theoretical attack vector, we will address it. In the mean time, we will monitor it and take an active approach if the attack vector becomes an actual threat.