You can decode quadrature encoders by reading port pins at a regular interval and decoding the state changes - if the change rate is slow (like for a user interface knob). If you are measuring motor angle/speed you need something higher speed. Hewlett Packard/Agilent had some nice little devices that kept count. something like HCTL1000 was the part number off the top of my head. Other methods are using the PCA as previously described, CPLDs,FPGAs, discrete logic or a combination of techniques. Depends on your cost ,speed constraints. I think Brian Millier did an article in Circuit Cellar regarding a user interface with a quadrature encoder probably using a PIC or 8051. Also, not being a PIC expert, I think the quadrature encoder stuff was done using software and relying on the speed (stupidity) of the PIC to get the job done. I don't think the PIC could did much else in this application.