Just found this post. Paul explains:
I had the idea that it might not be too much of a hassle to implement a scroll wheel with just an Arduino. You would only need one "send" pin and maybe four or five "receive" pins, all linked to the send pin with 1 M resistors. You would then send a "burst" (cycle of square waves) from the send pin, to each receive pin (in order). After reading each pin (see the reference) it would be flipped to an input with pinMode().
Hmmm... Quantum QWheel technology sounds exactly what I'm after. But I have no idea how to implement QT510 / QT511 / QT1106 in an Arduino design... Any thoughts?