I saw this link on hackaday (great site, btw). In the article it describes how to hack your normal track ball mouse and use those nifty encoders inside of it to do shaft encoding. It’s a pretty simple hack, really, only involving desoldering a few components and then reattaching them to a perf board.

If you aren’t familiar with quadrature encoding, National Instruments has a brief description of it.

The only problem is that you might have difficulty hooking the encoder up to something to actually measure (usually a wheel). Let me know how it works out.