[DonRotolo]

If you are using the toughbox from the KoP, or can somehow get a 1/4" shaft to turn with whatever you want to turn you can use the encoders supplied in the KoP this year.

You can use a photo-interrupter. There are two interrupters inside a ball-type (old style) mouse. Radio shack sells an LED / Photo-diode set that can be used. Just shine the light beam from the interrupter through something that interrupts the beam (like the teeth of a sprocket, a piece of chain from above, a special-built interrupter wheel, spokes of a KoP wheel, etc.)