The norm is VFD as it is the cheap easy option but is far away from the best, VFD/Induction motor will lose torque the slower it goes and on a lathe slow speeds are where you want the torque, AC servos and for that matter DC servos have an almost flat torque curve from 0 RPM to full rated RPM.
The reason as said most dont go the servo route is price, if you know what you are looking for and can find deals like I did then it may actually be cheaper but if I had bought my 12.5KW new from Rockwell it would have been over £4000 likewise the 22KW drives would have been that kind of price as well.
As mentioned deals are out there, I have just bought two old Siemens spindle drives for £10 each and also a 30KW VFD for £57, dont have a use for them at the moment but I pick up the bargains when they are going just in case I find a use

I use the Index pulse from the encoders on my servos but I use the SmoothStepper which is fast enough to read the short index from the encoder, if using the parallel port you would either have to electronically lengthen the pulse or go with the opto.
I drive mine with timing belts, you really need to if you are going to use it as an axis. The belts are amazing, on the lathe the belt is a Gates GT3 and is only 20mm wide and stands up no probs to the torque of my motor (83Nm cont 152.5Nm peak)
Hood