[Biff]

Last year we had good luck with keeping the sensors 2 to 4mm from our metal slotted encoders. As far as gears go I think you may have even more range. If you can hook an oscilloscope to the output it makes it very easy when things are too far away. As far as how many teeth, it depends on what you are trying to measure in the final analysis. There is a practical limit on how many pulses your program will handle. The closer to the motor when you are using reduction the more pulses you get. If you are using this in the drive train. Work backward from how accurate your tracking of the bots movement do you think you need. I.e. one inch or do you need better like 1/4". Then work the numbers back to the tooth counter.
Biff