I've had good luck with these:
http://usdigital.com/products/encode...rotary/kit/e6/

I'd get a higher count per inch encoder. get one that gives you a very even
count per inch movement number, like 20,000 or 50,000 or even 100,000.
remember you get four counts per encoder pulse.

get the differential option. use their wire and connectors.

Don't be a cheap skate and use the PC 5 volt supply. get one just for the
encoders. I usually get a multiple voltage out DC power supply. Seems like I
always need 24, 10, 5 I don't know if EMC does analog (10V) or opto
isolated digital I/O (24V)

Karl