This code works on a PIC 16F628A:

Code:
'---------Initialization--------
          
DEFINE OSC 20            ' set oscillator 20Mhz


' ***************************************************************
' Device Fuses
' ***************************************************************


#CONFIG
       __config _HS_OSC & _WDT_ON & _PWRTE_ON & _MCLRE_OFF & _BODEN_ON & _LVP_OFF & _CP_OFF & _CPD_OFF
#ENDCONFIG


CMCON    = 7    	 ' Turn off comparators
TRISA    = %00000000 ' Make all PortA pins output
TRISB    = %00110000 ' Make PortB pins 4-5 input




Old_Bits       VAR BYTE
New_Bits       VAR BYTE
RotEncDir      VAR BIT   ' 1=CW, 0=CCW
                         ' Rot Enc pin A connected to PortB.5;
                         ' Rot Enc pin B connected to PortB.4
Old_RPM        VAR BYTE
I              VAR BYTE


'***************************************************************************
' SETUP YOUR LCD HERE!!!
'***************************************************************************


;Define LCD_DREG PORTA
;Define LCD_DBIT 0
;Define LCD_RSREG PORTA
;define LCD_RSBIT 4
DEFINE LCD_EREG PORTB
DEFINE LCD_EBIT 7            ' Use PortB.7 as the Enable (E) bit since PortB.3
                             ' on the 16F628A is the one-and-only HPWM output
;define LCD_BITS 4
;define LCD_LINES 2
;define LCD_COMMANDUS 2000
;define LCD_DATAUS 50


'---------Includes----------


INCLUDE "EE_Vars.PBP"       ' Requires MPASM assembler
                            ' Go to "View > Compile and Program Options..."
                            ' On "Assembler" tab, check "Use MPASM"
                            ' (no need to change any of the default settings)
                            ' --> copy file to PBP main folder (i.e. c:\pbp)


MotorRPM VAR BYTE  :  @  EE_var  _MotorRPM, BYTE, 50


INCLUDE "DT_INTS-14.bas"     ' Base Interrupt System
INCLUDE "ReEnterPBP.bas"     ' Include if using PBP interrupts
                             ' --> copy both files to PBP main folder 
                             ' (i.e. c:\pbp)
ASM
INT_LIST  macro    ; IntSource,         Label,  Type, ResetFlag?
        INT_Handler    RBC_INT,  _Rot_Encoder,   PBP,  yes
    endm
    INT_CREATE     ; Creates the interrupt processor
ENDASM


@ INT_ENABLE   RBC_INT     ;RB Port Change Interrupt


' Set default values
Old_Bits = PORTB & (%00110000)
Old_RPM = MotorRPM


LCDOUT $FE, 1
PAUSE 1000


rpmAdj CON 20       ' PWM cycle seems to be "higher" than HPWM, so need
                    ' to reduce PWM cycle max to be less than HPWM cycle value


' Spin up motor to saved value of _MotorRPM
IF MotorRPM > rpmAdj Then
    FOR i = 0 to (MotorRPM - rpmAdj)
        PWM PortB.3, I, 100
    NEXT I
EndIf
' Begin background HPWM
GOSUB motorhpwm


Main:
    IF MotorRPM <> Old_RPM Then
        Old_RPM = MotorRPM
        GOSUB motorhpwm
@ EE_write_var _MotorRPM        ; save the new number to EEPROM
    EndIF


    LCDOUT $FE, 2, "MotorRPM: ", #MotorRPM, "   "
    pause 10     
    
    GOTO Main


motorhpwm:
    HPWM 1, MotorRPM, 20000 ; Tried 245 Hz but it made the motor too loud.
                            ; Supposedly, anything above 20kHz is above 
                            ; human hearing


    RETURN
end


'---[RBC - interrupt handler]---------------------------------------------------
Rot_Encoder:
    New_Bits = PORTB & (%00110000)
    IF (New_Bits & %00110000) = (Old_Bits & %00110000) Then DoneRotEnc
    RotEncDir = New_Bits.5 ^ Old_Bits.4
    IF RotEncDir = 1 Then
        ; CW rotation - increase speed but only to a max of 255
        IF MotorRPM < 255 then MotorRPM = MotorRPM + 1
    Else
        ' CCW rotation - decrease speed to a min of 0
        IF MotorRPM > 0 Then MotorRPM = MotorRPM - 1
    EndIF


DoneRotEnc:
    Old_Bits = New_Bits
@ INT_RETURN
This code does NOT on a PIC 16F1825:

Code:
' ***************************************************************
' Initialization
' ***************************************************************
          
DEFINE OSC 20            ' Set oscillator 20Mhz


' ***************************************************************
' Device Fuses
' ***************************************************************
' PIC chip data sheets can be found here: C:\Program Files\Microchip\MPASM Suite
#CONFIG
       __config _CONFIG1, _FOSC_HS & _WDTE_ON & _PWRTE_ON & _MCLRE_OFF & _CP_OFF & _CPD_OFF
       __config _CONFIG2, _LVP_OFF
#ENDCONFIG


ANSELA   = %00000000
ANSELC   = %00000000
TRISA    = %00000011     ' Make PortA pins 0-1 input for rotary encoder
TRISC    = %00000000     ' Make all pins on PortC output


Old_Bits       VAR BYTE
New_Bits       VAR BYTE
RotEncDir      VAR BIT   ' 1=CW, 0=CCW
                         ' Rot Enc pin A connected to PortB.5;
                         ' Rot Enc pin B connected to PortB.4
Old_RPM        VAR BYTE
I              VAR BYTE


' ***************************************************************
' SETUP YOUR LCD HERE!!!
' ***************************************************************


;Define LCD_DREG PORTA
;Define LCD_DBIT 0
;Define LCD_RSREG PORTA
;define LCD_RSBIT 4
;DEFINE LCD_EREG PORTB
;DEFINE LCD_EBIT 7            ' Use PortB.7 as the Enable (E) bit since PortB.3
                             ' on the 16F628A is the one-and-only HPWM output
;define LCD_BITS 4
;define LCD_LINES 2
;define LCD_COMMANDUS 2000
;define LCD_DATAUS 50


'---------Includes----------


INCLUDE "EE_Vars.PBP"       ' Requires MPASM assembler
                            ' Go to "View > Compile and Program Options..."
                            ' On "Assembler" tab, check "Use MPASM"
                            ' (no need to change any of the default settings)
                            ' --> copy file to PBP main folder (i.e. c:\pbp)


MotorRPM VAR BYTE  :  @  EE_var  _MotorRPM, BYTE, 50


INCLUDE "DT_INTS-14.bas"     ' Base Interrupt System
INCLUDE "ReEnterPBP.bas"     ' Include if using PBP interrupts
                             ' --> copy both files to PBP main folder 
                             ' (i.e. c:\pbp)
ASM
INT_LIST  macro    ; IntSource,         Label,  Type, ResetFlag?
        INT_Handler    IOC_INT,  _Rot_Encoder,   PBP,  yes
    endm
    INT_CREATE     ; Creates the interrupt processor
ENDASM


@ INT_ENABLE   IOC_INT     ; Interrupt-on-Change interrupt


' Set default values
Old_Bits = PORTA & (%00000011)
Old_RPM = MotorRPM


;LCDOUT $FE, 1
;PAUSE 1000


' Spin up motor to saved value of _MotorRPM
IF MotorRPM > 1 THEN
    FOR i = 0 to MotorRPM
        HPWM 3, I, 20000
    NEXT I
EndIf


Main:
    IF MotorRPM <> Old_RPM Then
        Old_RPM = MotorRPM
        GOSUB motorhpwm
@ EE_write_var _MotorRPM        ; save the new number to EEPROM
    EndIF


;    LCDOUT $FE, 2, "MotorRPM: ", #MotorRPM, "   "
;    pause 10     
    
    GOTO Main


motorhpwm:
    HPWM 3, MotorRPM, 20000 ; Tried 245 Hz but it made the motor too loud.
                            ; Supposedly, anything above 20kHz is above 
                            ; human hearing


    RETURN
end


' ***************************************************************
' [RBC - interrupt handler]
' ***************************************************************
Rot_Encoder:
    New_Bits = PORTA & (%00000011)
    IF (New_Bits & %00000011) = (Old_Bits & %00000011) Then DoneRotEnc
    RotEncDir = New_Bits.1 ^ Old_Bits.0
    IF RotEncDir = 1 Then
        ; CW rotation - increase speed but only to a max of 255
        IF MotorRPM < 255 then MotorRPM = MotorRPM + 1
    Else
        ' CCW rotation - decrease speed to a min of 0
        IF MotorRPM > 0 Then MotorRPM = MotorRPM - 1
    EndIF


DoneRotEnc:
    Old_Bits = New_Bits
@ INT_RETURN
(The motor spins at full speed and encoder changes are ignored).

I've been at this most of the night - any ideas? Apart from the subtle change to spinning up the motor to the saved _MotorRPM EEPROM variable, I can't see what I'm doing wrong. Am I missing a register setting to tell it to use PWM on CCP3?