willofgod:
First, I am not sure how magnetic is better or higher tech than optical. Second, my current design would work fine with any encoder output including the ones that that manufacturer sells.
It really is a system type problem. Fast encoder handling (no matter optical or magnetic) is best done via interrupts but as the AVR globally disables interrupts while any one ISR is active (including the arduino timer0 used for micros and millis) I think the possibility of missing pulses will always be there depending on the number and speed of the multiple encoders attempting to be supported. The concept of a standalone hardware supported encoder interface shield is a good one for higher performance applications.
Lefty