Yes, if you use a public mute list, all the data in it is stored as plaintext in the JSON file. There’s really no way around that.
Discussion
For example, here’s how nostr:npub1lh273a4wpkup00stw8dzqjvvrqrfdrv2v3v4t8pynuezlfe5vjnsnaa9nk appears in my mute list:
{
"type": "pubkey",
"value": "fdd5e8f6ae0db817be0b71da20498c1806968d8a6459559c249f322fa73464a7",
"reason": "King of the Knotzis",
"private": false
},
Both excellent and terrible. Thanks for the answer.