What do you mean by multimegahertz reversals ? Is the micro unable to read the pulses when moving the rotary by hand ?
as stated:
"At times your encoder will sit just across a boundary and you will have multimegahertz reversals"

At such times it takes a movement of "a millionth of" a degree to make the pulses show a reversal from forward to reverse and vice versa. If you move the encoder by hand and stop at such a spot this WILL happen.

Erik