I have Windows 8.1 with TrueCrypt 7.1a. I have encrypted the whole of my secondary drive. The "Optimise Drives" dialog reports the media type as "unknown" and the current status reports as "Optimisation not available".
My backup drive which is USB-connected but similarly encrypted behaves the same way. My primary drive is also encrypted but in this case Windows reports the type as "Hard disk drive" and the status is "OK"
To be honest I've never tried to defrag a truecrypted drive before, but the documentation says it should work.