Looking at the encoder manual you are going to have a problem using it:
http://www.adafruit.com/datasheets/pec11.pdfIf you look at the first section: electrical charactoristics, current rating = 1mA @ 5V
Looking at your C32 board all of the limit switches and probe inputs have a pullup resistor (basically a resistor that connects between 5V and the connected pin, so that the switch grounds the input pin)
http://cnc4pc.com/Tech_Docs/C32R5%204_USER_MANUAL.pdfThe problem comes from the input arrangement where (yup this is very common across bobs) the optoisolator input is an LED... and they require a certain current to function which looking at the pullup resistor ratings in your manual is somewhere around:
19mA for the probe input (5v - ~1.2V) / 200 ohm = 19mA
23mA for a 12V prox input (12v - ~1.2) / 4700 ohm = 23mA
5mA for a 24v prox input (24v - ~1.2v) / 4700 ohm = 5mA
and your encoder is only rated at 1mA...
I cannot tell what chips they have used with the C32 to provide the optoisolated inputs but if you can workout which chips deal with the inputs you can find the datasheets and see what their current requirements are for the LED to operate (there are some high speed switching optoisolators that use very little current too)
Rob