Told a couple of people that I know an easy way to decode rotating shafts,but I am not at my normal machine so cannot post my original notes but.. but the basic idea is that you use magnetic or optical detectors to genrate a Grey encoded output from your rotating shaft,then you use two nor gates gates connected as a bistable as you would with nand gates to make an sr latch,the nor gates form an asyncronous state machine which when fed with Grey encoded inputs cycles through 4 states and the direction that the Grey code is moving in determines the direction which the state machine enters state 0 from,so you detect state 0 at the output of the bistable and look at what the state was just prior to that to determine the rotation direction.
Sorry to be vague but I am away from my normal machine I will post the vhdl as soon as I can.Sowwy.