)Do i need to ensure the Arduino and the encoders have a common ground?
Can i power the Arduino via USB and power the encoders with an external DC power supply?
The encoder outputs a high of 2V. If i connect it to a digital I/O pin, will the Arduino detect it?
No. That's a surprising number. Are you sure it isn't just an "open collector" output that floats to around 2V? Do you have a part number? You can check it easily by connecting a 10k resistor from the output to +5V. If it's still 2V then it really is 2V, but my guess is you will measure 5V.
Do i need to ensure the Arduino and the encoders have a common ground?
This is the encoder, i am looking at
I was looking at the ROE-C series, on the last page(10) of the catalogue with open collector output.
How many input and output wires will this encoder have?
If you look at the E-series of encodersOutput voltage is given as Vin-2V or VCC-2VSo does this mean there are 3 inputs(Ground, Vin, VCC?)