I am ok to merge the RED/BLACK to a SINGLE 5V connection on the smart-x encoder? looks like in the J2 area, pins 1/11 are 5v and pins 2/12 are ground. I can extend the wires to each port if I need to, but I am hoping to power the 5v "Electric-ICE TB RGB-Drive", with one of the 5v pins on the turbotwist2.
Yes, you can run both of the optical sensor board power lines together. It's even done this way on the OptiWiz trackball harnesses we offer. Just make sure you observe the proper polarity

Depending on which trackball lighting unit you have, and how much of it you are using as (correct me if I'm wrong) you are using it in a static lighting implementation, it may or may not be wise to power it from the Opti-Wiz. I'm sure that doesn't help at all, but it sets the stage for the answer.
The Opti-Wiz3 really isn't really designed to deliver power to higher current LED lighting. If you will be using 1 primary color, it should be fine. 2 would possibly be ok as well, as would be the case for cyan, magenta or yellow, but trace temperatures on the PCB should be checked to make sure it's not getting too warm. But I would be very careful if powering all LEDs simultaneously for white, for extended periods of time. You might get away with it, but you will need to pay close attention to how well the PCB is handling the current. If it's only slightly warm in that configuration and the USB port isn't overloaded, even that will probably be fine.