All,
I am currently looking at the LM2917 frequency to voltage IC as a solution, it uses an variable reluctance(hall effect?) sensor to read magnets, or ferrous materials and based on some capacitor and resistor values of your choosing outputs a voltage proportional to the frequency. If I can get the circuit working, this will be the ideal solution in my mind, all you would need to do is read the analog input that it is connected to. If someone with more electronics experience than me wants to look at the data sheets, etc. for this they can be found here
http://www.national.com/ds/LM/LM2907.pdf
I also wonder if one could use optical pickups instead of the magnetic sensor as I have a few of those already, and they seem to be very reliable.
Looks like I'm off to the electrical engineering instructors office tomorrow.