Hi,
DMM, Digital Multi-Meter, for measuring voltages and current around your projects.
Have you changed the resisitor values suggested by @Southpark in post #45.
At the moment your existing values are loading down the encoder so that it cannot produce the HIGH and LOW voltages needed to be read by the Mega inputs.
Have you got the gnd of the Mega connected to the gnd of the encoder power supply?
Thanks.. Tom... 