HELLO from a NOOB- advice needed for NEMA 11 + dual shield, ...arduino

Hello,
Im new the world of arduinos- I have a few parts in my possession that id like to assemble into a working unit. For the end product I'm looking to use an optical encoder with a resolution of 500 degrees per rotation to accurately control a NEMA 11 bipolar stepper motor in both directions in a "one to one" fashion.

For example: Here is an example of a arduino uno pot controlled stepper that operated exactly the way id like mine to work:

My parts:

  1. arduino uno(s)
  2. Nema 11 motor (as pictured below)
  3. dual stepper motor shield (as pictured below)
  4. optical encoder with 4 pins (as pictured below)

diagram for shield:

I have a few questions that I hope someone can graciously bestow knowledge on to this NOOB. ...

A. I do not understand the motor wiring and how it connects to the drive socket (XO1A- YO2b) portion of the shield. Can Somebody please explain this.

B. Can someone explain to me the pins in which digitally control the X and Y drive sockets natively on this board, how do I know which pins to insert my encoder into and how it will translate into controlling a functional stepper motor.

C. is the Arduino alone powerful enough to run the Stepper, or will I need an external power supply?

A+B+C= code, code, code

If I understand the principles of this setup, I think I could gain a better understanding of how to manipulate the code...

future thoughts: i hope to be able to use XBEE's with my arduinos to control this device wirelessly... but first things first.

I hope to become a resource to this forum in the near future...

-Joel