Here's some real time experiences with shaft encoders.
In 2006 we attempted to use the VEX Encoders on our robots drive wheels and we found that under stress, under load, under heavy vibration they didn't count accurately or reliably so we abandoned using them.
Later on in the year we obtained a pair of H1-50 encoders from USDigital. It took about 5 days for us to get them via UPS ground so your mileage may vary. We found them to be highly reliable on the same robot and the same conditions we used for the Vex ones. I would higly recommend getting the cables they have for them too it makes life much easier when you only have to put hoods and pins on ONE end to connect on the RC. Additionally we may also look at using the E4 or the E4P series from USDitigal as well for 2007, but that has yet to be determined.
Also USDigitals Tech Support staff was very knowledgeable, very helpful and there is good dictionary of terms there, and some nice high level explanations.
We did not use Kevin's Encoder code, what we used instead was based on this whitepaper found here so you may also want to download and read this whitepaper on using quadrature encoders. We found it very helpful, insightful, and should help you understand the workings better.
http://www.chiefdelphi.com/media/papers/1490
PS. There is one minor bug, and one major bug in the sample code, in the initialization functions, but our crack team here found them and corrected them, so it all worked out great in the end.