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CD's are burnt as an image, like a tape - the CD encryption module encrypts the low level CD image.
so your policy is set to encrypt CD's, and that's what you ended up with - encrypted CDs?
if you want unencrypted CD's with encrypted files on them, that's something different, but it will mean the protection of the data will be up to the user to decide.
there's no way to selectively encrypt files put on CD, because that's done by your CD writing software, not the OS itself (even the built in writer is separate from the OS). It would have to make the decision, nothing else could.