develope a wheel encoder

i need to develope a wheel encoder for auto manuvering robot. please help me.

Steal one out of an old mouse. (The type with balls)

A little expensive (same thing you'd find in a computer ball mouse, like kchriste already mentioned)--

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I've used optical encoders on my kit.
I now use self adhesive aluminum foil (the kind they use to dryer vents) as they are 100% opaque compared to paint. A small IR pair work like a charm.
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implementing the idea

even though i got your valuable ideas, now i have the problem with the implementation in the software level. from the encoder output (its just pulses per rotation) how to locate the position on x and y direction as the mouse doing in a computer display/ or any other better calculation. i could able to develop an algorithm but not the actual code in PICbasic, because I'm very new for robotics (my major is networking and telecommunication). if anybody can help me to on this, i can catch up the robotics bit easily.

Research "quadrature encoder". This outputs two sets of pulses. It gives rate of rotation and direction...as in the mouses movement.

Ken