This statement is incredibly disappointing, given how much effort is done with other kinds of apps. How can encrypted communication not be a worthwile, and potentially lucrative niche?

The problem is that it is doable to create an encrypted email client, but the problem is how does one then send this off encrypted to a gmail account? There's no practical solution to handle that unless you want everyone to be on the same server, which then makes email pointless since there would be better solutions. But, unless google and the other big players adopt encryption, there's really no real way to do it streamlined.

I would, however, recommend adopting PGP, as that seems the simplest route to go.

I don't understand it either. The lack of easy email encryption effectively makes it impossible for me to use any at all, because no one else wants to take the effort to set it up (or is even capable of doing so) on their end.

I think the stagnation has something to do with the fact that some of the most popular email providers need to access their users' emails for marketing information. If Google got behind making PGP available for every Gmail account, there would be big progress but big popular providers have no incentive.

A related point is that as long as the majority of people remain happy with such services, there is little push to make encryption easier. After all, if you've already basically made you email public, why would anyone think that you want to encrypt it? The popularity of Gmail and similar services is proof that there is no demand for such things.

There used to be a nice Firefox extension called FireGPG. It integrated with Gmail. I think it had a lot of potential but it died.

Alternatively, you can look at using X.509 certificates. Most of the major and commercial dedicated email clients support this (even the one on iPhone). Though you are SOL if you use GMail's web browser interface.

You may need to pay for certificates, though CACert or maybe StartSSL will give you free ones.