Thanks Liudr, I got that shaft encoder to work :).
Like I said in the previous posts, I have checked basic issues such as connections and wiring mistakes...I am 99.9999999% confident that it is nothing of that nature. The datasheets have been provided aswell 
Here is a pic of my rig, I plugged the 16 X 2 display into the exact same connections on the bread board and it worked no problem (on its own and in parallel to the 20 X 4).
Uploaded with ImageShack.us