Hello Spicychic,
I won't ask why you chose that name..LOL. What I would do to test any rotary encoder, is to have it attached to a machined disk. On the outer edge of the disk, have a tongue of given dimensions. The dimensions really don't matter, as they will be subtracted from the total circumfrence of the disk. When the disk is being rotated, the tongue can come into contact with a premounted dial indicator, such as those used on a lathe. Run the disk CW and CCW for many cycles. Note the over or under run on the dial indicator with each rotation of the disk. This will tell you without a doubt, if the encoder is reading properly. It will also allow you an easy way to determine to what tolerance you wish the encoder to read. This kind of test is most certainly application free. Who cares what it is going to be measuring? The needed data is, does it count X amount of times, per degree of rotation and does it do it the same every time? This setup will tell you that.