Dear Erin,
Welcome to the forum here.
Regarding "We have found with our initial trial of adding the Excel File to SharePoint that when you convert from SharePoint Excel to using the desktop app the password protected workbook is no longer protected and anyone can go in hide / unhide any of the tabs in the Excel Document.", may I know whether you are using the Protect a worksheet feature and the Protect a workbook feature in the Excel desktop client?
If yes, may I know whether you first unlock the sheet or the workbook and then open the Excel files in the Excel desktop client? If yes, the issue may happen.
Given the situation, you may force the users to open the files in SharePoint in the Excel desktop clients first time. If you are the administrator, you can go to Library Settings > Advanced Settings > Check "Open in the client application" as a workaround.
Thanks for your effort and time.
Cliff