Joe, How fast are you spinning the encoder? How many CPR? I have been using 500 line (2000 CPR) encoder for a gate position applacation for about 6-7 years now. No bounce because they are optical. never lose any pulses, but they are going pretty slow. (30RPM) 1000 cps. I am doing this with 16F676, no interrupts just checking the A-B states in my main. It is a fast main loop but never the less. Oh and running on 4Mhz internal OSC