Sure, you can use 2 interrupts to manage a rotary encoder, but it is a bit of a waste of interrupts. I poll rotary encoders every 1 to 2 milliseconds instead, which also allows me to multiplex them (I've just completed a design that uses 3 rotary encoders multiplexed on to 2 input pins). You can find the code I use at http://miscsolutions.wordpress.com/2011/10/16/five-things-i-never-use-in-arduino-projects/.
US Digital sells a chip that connects to the encoder and has a count up, count down output.
The LSI Computer Systems LFLS7083 allow incremental shaft encoders to drive standard up/down counters. Connect the encoder quadrature outputs to the A and B inputs. The LFLS7083 outputs can connect directly to the up and down clock inputs of counters such as 74193 or 40193.The next generation Encoder to Counter Interface chips are now available and recommended for new applications (DIP package, LFLS7183 / LFLS7184, or SOIC package, LFLS7183-S / LFLS7184-S ).