MarkT:
However if you connect the common terminal to an analog pin, and via a 10k resistor to ground, then each of the other pins can be fed +5V via a different value resistor (say 4k7, 10k, 22k) then you will get a unique voltage at the analog pin for each of the 8 possible states I think...
This is what I had in mind, more or less.
I really doubt that an analog read would be anywhere near fast enough to catch a rotary encoder.
Care to explain? How fast does something need to be to catch a rotary encoder? This will be an input on a UI, i.e. a human will be turning a knob.