1- Is rigid taping on a lathe an option in Mach?
No its not an option as such, if you have a servo as a spindle motor then you could use SwapAxis and change the spindle to the A axis, this would then allow rigid tapping, it would however require that their is no backlash in the spindle setup. You can use a floating holder and do semi rigid tapping.
2- Can/should the encoder go to just Mach, just the drive, or both?
Encoder will just go to the drive, the index pulse may possibly be used for Mach but that will depend on what hardware you have, if just using the parallel port then it will probably be too short a pulse for the parallel port to see. If using external hardware such as the SmoothStepper then you can use the encoders Index pulse.
3- This is probably more of a question for automation direct, but how will the drive work with encoder feedback after a gear-shift? I may need to change the way I command the spindle speed based on the ratio between the motor and the drive.... Anybody out there done this?
Not really sure how your gearing works but it will more than likely not be a problem for the Automation Direct drive as it will still be rotating the spindle in the same manner, it will be your SpindleSpeed macro that will need to call things correctly.
Hood