It should increase accuracy, however whether it's noticeable when you take into account other factors such as any backlash/flex/temperature change, is another matter.
Out of curiosity, I'll run through some theoretical figures for the sensor I use, which has a worst case repeatability of 0.03mm.
Now direct on axis, as per my lathe, that's a potential error of 0.03mm, or 0.06mm diameter on a lathe X-axis.
Now I'll assume a lathe with a 5mm pitch screw, and the sensor mounted at 25mm from center.
The total circumference is 157mm (I'm rounding for simplicity hear!), of which 0.03mm is 0.019% of rotational travel.
Now as 1 turn is 5mm, we simply take 0.019% of 5mm, which gives us possible repeatability of 0.00095mm, or 0.002mm on a lathes X-axis.
Even if the sensor is mounted at 12.5mm from centre, repeatability is theoretically 0.002mm.
And having just run through those figures, I'm adding that when I redo my x-axis!
Off course the sensor Dickeybird is using, is of unknown spec, so his figures may vary.