Thanks, but I don't think that would be an option. I still need a high amount of RAM to store the pulses, I need to store the time between the pulses, that's the important information that I require.
But yeah, it is a quadrature encoder, it is optical.
I am really wanting to get the R pi, it has many peripherals that I want. The s-video, and the SD card slot is all a big plus to display and long term storage of the collected data. And yes, I am ignorant about ARM controllers, but the pi seems to have a lot on a nice little board. For what I currently want, I don't need a whole bunch of IO pins, I just need to read the encoder, and data from 3-4 other devices.
I think the pi will suffice for my purpose