In this discussion there has been some arguments related to discussing two types of encoders in one pot.
The Gray code encoders present a much more manageable process since the position relative to the last is a function of the code.
The AB encoders are a different animal alltogether.
They do, however, express some commonality, noteable the very/extremely fast changes at oscillations at limits in the optical disk.
For that reason, a CPLD/Agilent chip is required at the front end since the interrupt latency of even the fastest chips will make some counts miss at these fast oscillations.
The Gray code encoder has the advantage of it being possible to handle a few missed steps which cannot be handled with an AB encoder. The Gray code encoder, however, is more expensive and have more signals.
My work wwith encoders has all been with AB encoders and my comments on Gray codse encodders are all based on a few tries before the Gray was rejected due to cost.

Just one comment: since the encoder (typically) is in an industrial environment make sure you buy one with differential outputs so you can cancel the noise.

Erik