[marshall]

Originally Posted by rsync

This is how connected them:

Breakout Board ------- Encoder (pins from right)
Pin 1 (CH B) ------- Pin 4 (CH B)
Pin 2 (V+) ------- Pin 1 (VCC)
Pin 3 (CH A) ------- Pin 3 (CH A)
Pin 4 (Index) ------- Pin 2 (GND)
Pin 5 (V-) ------- Not connected

The pin labels on the encoder are not easy to see but here's the andymark page (http://www.andymark.com/product-p/am-2816a.htm).

We also tried leaving the Pin 2 (GND) of encoder out, but that didn't change anything.

This is not going to work. Leave the Index floating and connect GND to V-.