How is cheating possible?

[Zapmeister]

While I'm not a cryptanalyst, I suggest you search the net for "chosen plaintext attack".

I won't do this, but I will take your word for it that the encryption can be defeated with an appropriate tool.

That being the case, there's no defense short of server checking, and there's a lot of checking to do. The type and quantity of every asset a player apparently holds (gems, items, units etc) in the incoming 2h file has to be reconciled against the ftherlnd file, and that's not easy.