I would change out the encoder to about 1/4 of that. No way can you use that much resolution.
Have to disagree there, the more resolution you have the better as it should allow much better tuning on a servo system but thats just my opinion
But with high count encoders and the parallel port it can be a problem as you need to run a high kernel and not many will reliably run at over 65KHz. Using an external controller such as SmoothStepper, KFlop etc does away with that issue.
See if your drives can utilise electronic gearing, personally I am not a fan of it but at least you would be able to reduce your kernel without having to change out encoders.
Hood