I purchased a Bourns ENA1J serial rotary optical encoder. This control has a nicely weighted shaft that uses ball bearings. It is rated for >= 10 million rotations. The ENA1J outputs beautiful square signals (unlike mechanical rotary encoders). I think I paid USD$35 for this premium part. You will find optical rotary encoders on high end radios like the Elecraft K3 and professional mixer boards.
I designed a pcb that takes the quadrature output of the ENA1J into INT0 and INT1 inputs of the ATMEGA328P mcu. A pin header gives access to the I2C bus that allows this to be used as a satellite peripheral.
