George,
The AT89C52 timer 2 works the same as the original Intel 8052. The timer (0,1, or 2), when used as an external event counter can increment only as fast as 1/24 the oscillator frequency.
The following text is taken directly out of Atmels data sheet on the AT89C52.

"In the Counter function, the register is incremented in
response to a 1-to-0 transition at its corresponding external
input pin, T2. In this function, the external input is sampled
during S5P2 of every machine cycle. When the samples
show a high in one cycle and a low in the next cycle, the
count is incremented. The new count value appears in the
register during S3P1 of the cycle following the one in which
the transition was detected. Since two machine cycles (24
oscillator periods) are required to recognize a 1-to-0 transi-tion,
the maximum count rate is 1/24 of the oscillator
frequency. To ensure that a given level is sampled at least
once before it changes, the level should be held for at least
one full machine cycle."

The important point to understand is experienced engineers giving their help through this forum can only generalize on how to implement a procedure if the exact hardware specifications etc are not known. Those who seek advice still need to do their homework to determine the specifics of their design. If Sontaya were to take Jay's advice as a matter of fact he would have been disappointed to find that his design would fail to meet specifications above 500kHz.
Allen