So does the firmware get installed on the PS3 to make it recognize/see the endcoder?
To be clear, the firmware I was talking about is installed on the KADE using the KADE Loader software.
The KADE becomes a HID keyboard, a HID gamepad, or a PS3 gamepad based on the firmware you install.
The KADE will retain the installed firmwre/settings until you use Loader to program the KADE with different firmware/settings.
Check out the Quick Start guide
here for details and a link to the Loader software.
You don't need a "kade", you need a minimus 16 and you need to download the kade firmware onto it. The minimus is all of $7 from Amazon.
Yes, you can solder wires or 0.1" header pins straight to the Minimus AVR board if you're so inclined or pay for the handy-dandy screw terminals.
Loader will work with a 16k Minimus (AT90USB162) or a 32k Minimus (ATmega32U2) board. (more are being added)
Do you have a link for that $7 board?
The only one I've seen on Amazon is
this one. (currently sold out)
i was swaying him from having to solder up anything. Yeah you can get a $7.00 minimus and do hack job on that if you want to. However the kits just make it easier. If your cutting costs PBJ is correct, although i wouldn't recommend that route. Getting the kits will make your wiring nice and neat, per the photo.
I wouldn't call soldering on a Minimus a hack job, unless you're commenting on someone's lack of soldering skill.

Given a choice between hacking a gamepad vs. soldering on a Minimus, the Minimus wins every time IMHO.
Like you said, options.

Scott