[Steve_Alaniz]

Yes... you are feeding the A and B phase in and getting a number of states divided by whatever count you select AND a direction signal ( forward or backwards) the Kevin Watson code counts the states and determines the direction so it increments or decrements the count.
I am using two 64 counts per rev encoders on 6 " wheels and going directly into the 5,15 6,16 pins which gives me 128 states per rev. This Works great.
The banebot encoder doesn't really clean up the signal... it's digital anyway. Perhaps you were running too fast and losing counts.

Steve