[Ryan O]

In direct answer, yes, if the wheels slip then the encoder will be wrong. An encoder measures a number of revolutions, and has no way of "knowing" how much traction a wheel has. For traction control, you could look at either an idle wheel, current sensors on the motors, or an accelerometer. Encoders are a good choice to see what the wheels are doing in terms of speed - it will allow comparison to another sensor - and the comparison could provide the slip/no slip info you want.