I uesd a prox switch for the X axis on my lathe, and a roller micro for the Z axis. The Z axis doesen't have to be very accurate as you are always resetting the zero for the end of the stock. The X axis, on the other hand, must be dead accurate because this is the machine's accuracy, with the tools you have set. If the X axis is not accurate then the diameters will be different with each tool you use, which is a problem for a lathe. I used a tenth microstepping Gecko drive, a .200" ballscrew, and drive it 2:1 with a tooth belt, this gives tenths of a thouasandth in diameters of inches, which is a standard lathe accuracy limit.
Dave A.