Well, "disgustingly cheap" but requiring MORE steps than a mouse
wheel
can be done by a spare gear of around 40 or more teeth. I just
tried that
with an 80-tooth gear that's been in the junkbox for decades. Used
an
optical interrupter but had to Dremel open the spacing (cut the base
of the
plastic mounting).

Gear teeth are cut with precision and even rejects are good enough
for this
kind of adaptation. About the only problem is that the openings
aren't as
abrupt as the mouse wheel...but that is easily overcome by a Schmitt
trigger inverter...and perhaps some shielding from ambient light
into the
interrupters' photosensor. Used a Fairchild interrupter costing
about $2, left
over from another project.

I mentioned the Robert Dennis circuit for its simplicity in using
ALL the
transitions possible of a sensor wheel. That's twice as many as a
more
common dual-D FF decoder circuit. Takes three packages versus one
to
get all the transitions for Up/Down outputs for direction sensing.

NOT the space shuttle, yes. I've worked on the instrumentatin for
the
space shuttle main engines (at Rocketdyne) and understand the
complexity
and reliability needs for man-rated spaceflight. :-)