Code slows down with simple led on/off added

Using Arduino Programming Questions
7 
void doEncoderA(){
  // debounce
  if ( rotating ) delay (1);  // wait a little until the bouncing is done

  // Test transition, did things really change? 
  if( digitalRead(encoderPinA) != A_set ) {  // debounce once more
    A_set = !A_set;

    // adjust counter + if A leads B
    if ( A_set && !B_set ) 
      encoderPos += 1;

    rotating = false;  // no more debouncing until loop() hits again
  }
}

You can't use delay inside an ISR! nor should you use Serial.print etc.

Mark