It is absolutely critical that run out be very small and end play in the shaft be near zero. The distance the encoder wheel is set from the sensor is very important. You need to look at the signal with a scope. If everything is not just right the sensor will drop out one or the other of the A or B channel. This creates errors. It is important that the sensor base is used with the correct line count encoder wheel. If the two do not match then the relationship between the A and B signals will not be 90 degrees.
We mounted a KOP sensor on the CIM motor for our drive train. It was reading in the 4800 RPM range just fine once we got everything aligned properly. Attached is a photo.
We used the larger brother of the KOP sensor for the shooter. We used a 3/8" shaft. The sensor is larger, and seems easier to mount. Attached is a photo with the cap removed. Here is a link:
http://usdigital.com/products/encode...rotary/kit/E7P
-Hugh