Hi David,

there are several ways:

1.
you can feed both clock signals of the 7083 into both counters.
To get the position, substract one from the other.

2.
You can feed both quadrature signals direct into the two interrupts of the 8051. Then on the interrupt handler increment or decrement a value.
You must detect every transition. How this can be done, can you see on my user page "Interrupt Tutorial / PWM".

Peter