The problem with rotary encoders is, that when the machine stops with the encoder exactly across a border (e. g. transparent/opaque limit in an optical encoder) You will, due to the unavoidable slack in gears, couplings etc get pulses at a much higher frequency than you ever dreamt the encoder could produce. I know of no micro that can keep up (I do not think a pentium could with the interrupt latency it has). Since every one of these pulses represent a direction reversal, not catching all of them will lead to gross inaccuracy. You need code it in a (C)PLD or buy the HP chip. a post a month or so ago listed the type do a search on 'encoder'

Erik