I can't tell if you have tested the optical boards yet. If not you can test it by powering the board (either by normal connection to interface board and to computer, or straight to 5v+ power supply and ground), and multimeter between output A/B to ground. Then see if the meter goes from ~0-1 to ~4-5 V and back as you spin the encoder wheel. Test both outputs.
If you get the jump (can be +- a volt or two) on both outputs, the boards are working, and the problem is elsewhere.
If you get the jump in one of the outputs but not the other, either one of the 2 sensors isn't working, or the wheel isn't lined up right.
If you get a steady reading on both, it may not be all bad. First try testing in the dark, either cover the sensor board with a heavy cloth or something, do it with the lights out. It doesn't have to be pitch black, but the darker the better. The other thing is you might have to ground both outputs. If you don't get anything this way, try blocking the sensor with something besides the encoder wheel (make sure the wheel is out of the way

). If that doesn't work,

you have problems with your boards (or the power to the boards).