Photoswitches are definitely the way to go. At the wheel speeds teams are using, finding encoders with shafts is difficult. Shaftless encoders like the US digital are a little touchy, and require decent tolerances too.
Optical sensors, on the other hand, will give you excellent speed control while allowing just about any alignment you feel like. There are a number of threads on this, however, so I suggest you search some of them out.
http://www.chiefdelphi.com/forums/sh...ht=photoswitch