Piher makes a continuous rotation pot, the N15 series. Spec sheet here:
http://www.piher-nacesa.com/pdf/n15.pdf
Mouser sells them (mouser.com). For example, mouser part# 531-N15TV-100K. They only do 340 degrees, so you need two of them to get 360 coverage.
The advantage over the optical sensors is
- direct readout (no CPU load)
- easy to program
- cheap @ $3
The disadvantages are
- poor accuracy (3% = 11 degrees)
Bill