Bob Segrest has designed a very small PCB, you can contact him at bobslan@erols.com.
Patrick Dufour offers a very compact commercial encoder interface box. See his WebPages at http://www.microtec.net/~pdufour/index.htm, or reach him at Ouranos, 189, rue Du Foin, Saint-Augustin de DesMaures (Quebec), Canada G3A 2S6, Tel. 418-878-9426.
Finally, you can use the encoders from a mouse. Make sure that
acceleration and multiplication settings are turned off via the mouse driver.
Use the timer method of halfstepping instead of the delay method that temporarily
turns off interrupts.