Hey guy's, Why not just use 2 external interrupt lines (int0 & int1) in high priority mode, and just increment or decrement a counter? I have used this approch for years on my mill and I haven't lost a count yet. I have attached a URL for the front end circuit I used. I have NO problem a tracking 1000 Rpm, 720 CPR encoder using LONG's.
Here is the URL: http://electronicdesign.com/analog/s...ation-encoders

I eliminated the caps and just use 10k resistors. Read the artical as it is informative.