Do you have a bare AS5304 chip, or are you using the adapter board that was supplied for FRC teams in the 2011 Kit of Parts?
If it's the AS5304-AB-2.0 board, with JP1 labeled "Ind AO B A GND 5V", then connect it exactly the way you would connect a quadrature encoder. Because that's exactly what it is. +5 and GND go to the +5 and GND pins of a DIO port on the roboRIO, A goes to the SIG pin, and B goes to the SIG pin of a second DIO port.
http://www.usfirst.org/uploadedFiles...r%20Manual.pdf