I'm thinking there may be a way for me to get my head around the math that will be involved before I start hooking up the PIC to the encoder.

I was thinking of plugging some numbers into an excel sheet.
One set of numbers to represent one full sinusoidal wave.
And another set of numbers with the same values 90 degrees out of phase.

Then - if I understand the formula - I would acquire the arc-tangent of one and divide it over the arc-tangent of the other - at that same point.
I was thinking this might help me to anticipate what types of values to expect to see - and how to derive direction and movement them.

Does that sound like a valuable experiment to you?