Nope. It's not much harder than that. Phidgets has an interface you can access with your code. The BASIC STAMP circuits can also accept various inputs but require some knowledge of electronics. They do come with lots of educational materials to help you out. Phidgets is pricier, but for that you get the ease of use and integration via USB.
Also, do a search on "rotary" and I think you'll find a thread on some folks talking about how to do something similar to what you're asking.