In the last couple of months, I've met numerous people with varying background all sharing one misconception about cellular networks. Even I was not very clear on this until recently: GPRS encryption is very different from GSM encryption. Most people know it uses different algorithms, sure. But it also operates on a completely different layer in the protocol, and is between two different entities.
Encryption in GSM networks happens on the Layer 1 of the Um interface between the MS and the BTS. It is a simple point-to-point encryption of only one particular network interface. There is no more encryption as soon as the signalling, voice and SMS data leaves the BTS (on a microwave link or actual land line) to the BSC, MSC, SMSC and other network elements.
In GPRS, the encryption is not on the Layer 1, but on the Layer 2 (LLC) of the Um interface. As the LLC layer is not terminated at the BTS but at the SGSN, the data is still encrypted when it leaves the BTS.
This means, among other things, that things like eavesdropping on unencrypted microwave links does not work for GPRS anymore.