Partner here. Yes, we have it connected as a sensor. Middle pin to ground, left and right to the interrupt pins (pulled high) on the Arduino. We tried several methods to read values from the encoder including the encoder library found at http://www.pjrc.com/teensy/td_libs_Encoder.html
. The problem that we are encountering is that the encoder only outputs 2 basic values, 1 and 0. If the encoder is "clicked" into a segment the value read is a 0; if the encoder is between segments the value read is a 1. This has been verified using the serial console. The stepper motor is controlled with a stepper controller and works as expected (we tested it using inputs other than the rotary encoder). This has lead me to believe that the encoder is faulty.