Terryset,

Did you ever get this worked out?
I also have the Digispeed DC-04 on a Sherline with the DRO and am having trouble getting RPM to display in Mach 3.

Homann support verified that only one pulse per rev is required for the Index input, and that the Index pulses are passed through the DC-04 even if the switch is set to manually control the spindle with the pot.  I covered all but one black segment on the standard Sherline disc with white tape.  Now I wonder if it should be all (non-reflective, flat) black with only one narrow (reflective) white segment. 

Your thoughts?

B3030