It's the latter, there is encryption for everything but of course Telegram has the keys. But I don't think there's information if Telegram stores data encrypted or not.
There is E2E encryption for private ono on one conversations, but it is off by default and the option to enable it is buried behind a few screens ans several clicks..
And it is completely unavailable for group chats..
If you want more details, Matthew Green, the famous cryptographer from Johns Hopkins University have reviewed it recently
I'm sorry, but MTProto isn't just used for E2E chats. It's the actual main protocol that Telegram uses for everything. And yes, for non-secure chats there will be no E2E, but the question was about encryption, not end to end encryption.
communication between client and server is always encrypted and they don't even need MTProto for that, a simple TLS connection would be more then enough, and likely better. Also, that is likely true for all modern messaging apps..
The question proposed is that Telegram was monitoring private chats on the client side, but they do not need to do that unless E2E is enabled..
If you do not have E2E enabled then everything you send is in the open while in their servers..
So, if you do not have private chat enabled then Telegram does not need to make any type of client side monitoring, they can just monitor what is going trough their servers because it is all in the open..
Anyway, I don't know why HN crowds tend to aggressive with Telegram. Personally I like it and use it like a social platform.
[1] https://www.reuters.com/article/world/exclusive-apple-droppe...